S. Hrg. 103-1038
yo^ the bayh-dole act, a review of patent
issues in fiderally funded research
Y4,JB9/2:S.HRe. 103-1038 j^jj^q
,. ^ . „ >RE THE
The Bayh-Dole Act* A Revieu of Pate...
kjuj-»v-yv-/i.»xx\nT TEE \rS
PATENTS, COPYRIGHTS AND TRADE.AURKS
COMMITTEE ON THE JUDICIARY
. UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
Public Law 96-517
TO EXAMINE THE IMPLEMENTATION OF THE GOVERNMENT PATENT
POLICY ACT, WHICH ALLOWS UNIVERSITIES TO PATENT THE RE-
SULTS OF RESEARCH FUNDED BY THE FEDERAL GOVERNMENT AND
LICENSE THEIR INVENTIONS IN THE MARKETPLACE
APRIL 19, 1994
Serial No. J-103-50
Printed for the use of the Committee on the Judiciary
AU6 \ 7 I3S3
U.S. GOVERNMENT PRINTING OFFIGE-' ^ 'QO/^rtx
91-388 CC WASHINGTON : 1995
For sale by the U.S. Government Printing Office
Superintendent of Documents. Congressional Sales Office. Washington, DC 20402
S. Hrg. 103-1038
THE BAYH-DOLE ACT, A REVIEW OF PATENT
ISSUES IN FEDERALLY FUNDED RESEARCH
Y 4, J B9/2; S. HRG. 103-1038 j^j^q
PATENTS, COPraiGHTS AND TRADEJURIvS
COMMITTEE ON THE JUDICIAKY
UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
Public Law 96-517
TO EXAMINE THE IMPLEMENTATION OF THE GOVERNMENT PATENT
POLICY ACT, WHICH ALLOWS UNIVERSITIES TO PATENT THE RE-
SULTS OF RESEARCH FUNDED BY THE FEDERAL GOVERNMENT AND
LICENSE THEIR INVENTIONS IN THE MARKETPLACE
APRIL 19, 1994
Serial No. J-103-50
Printed for the use of the Committee on the Judiciary
Al/6 f 7 13S5
U.S. GOVERNMENT PRINTING OFFICE"-' '^P^^V
91-388 CC WASHINGTON : 1995
For sale by the U.S. Government Pnnting Office
Superintendent of Document.s. Congressional Sales Office. Washington, DC 20402
COMMITTEE ON THE JUDICIARY
JOSEPH R. BIDEN, Jr., Delaware, Chairman
EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah
HOWARD M. METZENBAUM, Ohio STROM THURMOND, South Carohna
DENNIS DeCONCINI, Arizona ALAN K. SIMPSON, Wyoming
PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa
HOWELL HEFLIN, Alabama ARLEN SPECTER, Pennsylvania
PAUL SIMON, IlUnois HANK BROWN, Colorado
HERBERT KOHL, Wisconsin WILLLAM S. COHEN, Maine
DIANNE FEINSTEIN, California LARRY PRESSLER, South Dakota
CAROL MOSELEY-BRAUN, IlUnois
Cynthia C. Hogan, Chief Counsel
Catherine M. Russell, Staff Director
Mark R. Disler, Minority Staff Director
Sharon Prost, Minority Chief Counsel
Subcommittee on Patents, Copyrights and Trademarks
DENNIS DeCONCINI, Arizona, Chairman
EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah
PATRICK J. LEAHY, Vermont ALAN K. SIMPSON, Wyoming
HOWELL HEFLIN, Alabama CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California HANK BROWN, Colorado
Karen Robb, Chief Counsel and Staff Director
Mark Disler, Minority Chief Counsel
STATEMENTS OF COMMITTEE MEMBERS
DeConcini, Hon. Dennis, a U.S. Senator from the State of Arizona 1
Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts ... 8
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah 8
CHRONOLOGICAL LIST OF WITNESSES
Hon. Birch Bayh of Bayh, Connaughton, Fensterheim & Malone, Washington,
DC : 9
Dole, Hon. Robert, a U.S. Senator from the State of Kansas 16
Daryl Chamblee, Acting Deputy Director for Science, Policy, and Technology
Transfer, National Institutes of Health, Bethesda, MD 19
Howard Bremer, Association of University Technology Managers, Madison,
Barbara Conta, director. Technology Transfer, Regeneron PharmaceuticEil
Corp., Tarr3rtown, NY, representing Biotechnology Industry Organization,
Washington, DC 85
Charles M. Vest, president, Massachusetts Institute of Technology, Cam-
bridge, MA 97
Gary Munsinger, president. Research Corporation Technology, Tucson, AZ 101
ALPHABETICAL LIST AND MATERIAL SUBMITTED
Bayh, Hon. Birch:
Prepared statement 12
Prepared statement 33
COGR, University Technology Transfer Questions and Answers, Nov.
30, 1993 38
Patents granted to U.S. University and Colleges 76
Prepared statement 22
Letter to Senator DeConcini 27
Prepared statement 87
DeConcini, Hon. Dennis:
Immediate release 2
Sheldon Elliot Steinbach, vice president and general counsel, Amer-
ican Council on Education, Washington, DC, May 16, 1994 2
Christopher J. Doherty, Washington director. New England Bio-
medical Research Coalition, Wasnington, DC, Apr. 19, 1994 4
Dole, Hon. Robert:
Prepared statement 17
Munsinger, Gary M.:
Prepared statement 102
Vest, Charles M.:
Prepared statement 98
Letter to Senator DeConcini 100
International considerations of patent issues in federally funded research
in universities 100
THE BAYH-DOLE ACT, A REVIEW OF PATENT
ISSUES IN FEDERALLY FUNDED RESEARCH
THURSDAY, APRIL 19, 1994
Committee on the Judiciary,
Subcommittee on Patents, Copyrights and Trademarks,
The committee met, pursuant to notice, at 10 a.m. in room 216,
Hart Senate Office Building, Hon. Dennis DeConcini (chairman of
the subcommittee) presiding.
Also present: Senator Kennedy.
OPENING STATEMENT OF HON. DENNIS DeCONCINI, A U.S.
SENATOR FROM THE STATE OF ARIZONA
Senator DeConcini. The subcommittee will come to order.
I would like to welcome everyone to this morning's hearing. The
intention of this hearing is to examine the success of technology
transfer under the Bayh-Dole Act of 1980 and to discuss the future.
I want to thank the witnesses for being here today to provide
their insight on technology transfer. I would like to especially
thank our colleague, Senator Dole — he is tied up with some leader-
ship responsibilities and is going to try to come over — and of course
our former colleague. Senator Birch Bayh, who is a long-time friend
of both Senator Kennedy and myself, and has a great deal of re-
spect here in this body. We thank him for his participation today.
I appreciate both the Senators' participation, considering their busy
We will also hear from representatives from the key Federal
agencies in charge of administering the Bayh-Dole Act, the Na-
tional Institutes of Health. Then we will have a panel consisting
of technology transfer experts and individuals representing univer-
sities and the biotechnology industry.
The transfer of research results from universities to the commer-
cial sector was virtually nonexistent prior to the passage of the
Bayh-Dole Act. The reason: there was no clear Government policy
regarding ownership of inventions made under Federal funding.
The Bayh-Dole Act created a uniform patent policy among the
many Federal agencies that fund Federal research. The result was
that universities were provided an incentive to engage in Govern-
Under the act, small businesses and nonprofit organizations, in-
cluding universities, were permitted to retain patents derived from
Federal funding and license these inventions to the private market-
place. This incentive was necessary because companies would not
license technology from a university lab unless they were sure that
they would be able to retain the patent rights. The Bayh-Dole Act
has proven to be immensely successful by increasing the number
of patents generated by universities in promoting a collaboration
between industry and the academic community.
Nonetheless, concerns have been raised by some that the Govern-
ment does not adequately regulate the resulting price of technology
developed with Federal funding. Most of these concerns revolve
around this act. So we hope to address this. I also think that public
interest requires us to address whether or not the Federal Govern-
ment should participate in the rewards from the research spon-
sored by the universities and then licensed to the private sector.
We look forward to hearing of the positive results of the act. We
are also looking forward to discussing the future of the act, what
reforms are needed — if any — and where to go from here.
Senator Hatch had another committee he had to work with
today. That is the reason he is not here. But I talked to him just
last night about this hearing and he is very interested in it.
Without objection, Senator Hatch's prepared statement will ap-
pear in the record.
[Senator DeConcini submitted the following:]
News From U.S. Senator Dennis DeConcini for Immediate Release
FRIDAY, APRIL 15, 1994
WASHINGTON — Senator Dennis DeConcini (D-Ariz.) will chair a Senate Judici-
ary Subcommittee on Patents, Copyrights and Trademarks hearing on the Bayh-Dole
Act, which allows universities to patent the results of federally-funded research, on
Tuesday, April 19 at 10:00 a.m. in the Senate Hart Building room 216.
The act, sponsored by former Senator Birch Bayh (D-Ind.) and Senator Robert
Dole (R-K^n.) in 1980, allows universities to patent the results of research funded
by the federal government and license their inventions in the marketplace. Prior to
the act, companies were not able to gain exclusive rights to the results of federally-
funded university research, and thus were not able to legally control the production
of commercial products derived from the research. This prevented many companies
from investing the huge amounts of money needed to further develop the basic re-
search so it would have commercial applications, and denied the public access to
new medicines and technologies derived from federally-funded research.
Since the passage of the Bayh-Dole Act, there has been an increased number of
patents issued to universities, which has allowed valuable discoveries and new tech-
nologies to reach the public. Without the act, experts have said, many fast-growing,
cutting-edge industries, such as biotechnology industry, would not even exist.
Among those scheduled to testify are Bayh, Dole and representatives of the Asso-
ciation of University Technology Managers, the National Institute of Health, Massa-
chusetts Institute of Technology, and the biotechnology industry.
American Council on Education,
Washington, DC, May 16, 1994.
Hon. Dennis DeConcini,
Chairman Patents, Copyrights and Trademarks,
U.S. Senate, Washington, DC.
Re: Bayh-Dole Act
Dear Mr. Chairman: On behalf of the American Council on Education, the A.sso-
ciation of American Universities, and the National Association State Universities
and Land-Grant Colleges, we wish to express our support for the Bayh-Dole Act and
to comment on the positive accomplishments in the field of technology transfer since
its enactment. We would appreciate this letter being included in the hearing record
for April 19, 1994.
Bayh-Dole has provided a vital link between federally funded university research
and product development by providing effective mechanisms and incentives for col-
laboration between university researchers and corporations willing to finance tech-
nological development. The result of this mutually beneficial collaboration also bene-
fits the federal government, and U.S. taxpayers because many university inventions
are licensed to small- and medium-sized American companies and those companies
create jobs and tax revenue.
This statement discusses some of the dynamics of Bayh-Dole that have made it
so successful. These include its uniform patent procedure, the active marketing of
inventions by experienced university personnel, tne protection of domestic interests,
and the stimulation of industry-financed research.
We also wish to express our concern about the Final Rule dated January 6, 1994
implementing the Advanced Technology Program (ATP). Unless that Rule is modi-
fied as proposed in pending legislation, the intent of Bayh-Dole is seriously under-
mined and university participation in the ATP is jeopardized.
1) Uniform Patent Procedure: Bayh-Dole established a uniform, government-wide
patent procedure for small businesses and nonprofit organizations performing gov-
ernment-supported research and development. The Act grants small businesses and
nonprofit institutions the first right to hold title to inventions arising from federally
supported research. The small business or nonprofit institution must meet certain
reporting requirements, grant the government a license for governmental purposes,
and undertake an active effort to commercialize the invention. Any royalty income
realized must be shared with the inventor(s) and the balance (after the expenses
of the technology transfer program are recovered) must be used for scientific re-
search and education. The government retains the right to "march-in" if the inven-
tion is not being effectively utihzed, there are unmet health or safety needs, or the
requirement for U.S. manufacture is not met.
The Act represents a positive step in U.S. policy which provides an incentive for
universities and university researchers to devote effort to technology transfer. In ad-
dition, it provides reassurance to companies that universities can quickly obtain the
right to license federally funded inventions on commercially reasonable terms.
2) Marketing University Inventions: While generating inventions is not the main
objective of most university research, inventions are frequent by-products of that re-
search. If those inventions Eire to be used for the public benefit, the university must
interest those in the industrial world to invest in the development activities nec-
essary to convert the invention into a viable commercial product. Since Bayh-Dole
was enacted, many universities have invested heavily in creating a technology
transfer infrastructure and now have in place professional staff with expertise in
marketing and licensing early stage technology. That infrastructure has been suc-
cessful in increasing the numbers of patents obtained by universities as well as the
number of patents that are licensed. Since university inventions tend to be in the
earliest stages of development, they require substantial investment before a product
can be brought to market. Furthermore the best source of information on the sci-
entific basis for the patent is the university researcher who undertook the research.
Immediate industrial access to these researchers, often leading to further collabora-
tion, is of critical importance to the successful transfer of this knowledge to indus-
try. The abiUty to grant exclusive licenses as provided by Bayh-Dole has proved to
be critical in order to induce companies to make that investment.
3) Protection for Domestic Interests: Much university-developed technology is li-
censed to small- and medium-sized companies, thus strengthening the U.S. small
business community which provides the preponderance of new jobs in the United
States. Exclusive licensees of federally funded inventions are required to substan-
tially manufacture in the U.S. any products which are to be sold in the U.S. The
allegation that valuable technology arising from university research is sold or
bartered to foreign corporate interests for less than its fair market value is without
foundation. For example, at MIT, a leader in technology transfer, 95 percent of its
exclusive patent licenses have been with U.S. companies.
4) Industry Investment in University Research: University technology transfer ac-
tivities have also stimulated increased research funding from industry. This indus-
trial funding not only leverages federal research funding, but it facilitates further
applied research and development by the industrial sponsor in order to convert the
results of university basic research into commercial products. The sponsoring com-
pany has already shown it is committed to the research field and thus is a logical
candidate to license any resulting inventions.
Bayh-Dole has facilitated stronger research relationships between universities and
industry — a stated goal of the Act and an outcome that is consistent with the wishes
and expectations of the government and the public. Universities have demonstrated
the ability to work effectively with industry in collaborative research and technology
transfer activities while protecting traditional academic values regarding research,
pubUcation and education as well as protecting the public interest through the suc-
cessful licensing of federally funded inventions.
Advanced Technology Program
In 1988, Congress established the Advanced Technology Program (ATP), which
provided for direct assistance to businesses or to joint ventures (which could include
businesses, universities and independent research organizations) to develop new and
promising technology. Thus, Congress has involved the federal government, univer-
sities, independent research organizations, federal laboratories, and industry in a
common effort to develop new technology and bolster the position of the United
States in the world economy.
In 1991, Congress amended the ATP in the American Preeminence Act. A major
focus of the 1991 amendments was to limit the benefits any foreign entity could re-
ceive under the ATP. In so doing. Congress utilized the word "company" and among
other things stated that "title to any intellectual property arising from assistance
provided in this section shall vest in a company or companies incorporated in the
United States." In interpreting the 1991 amendments, attorneys at the National In-
stitute of Standards and Technology (NIST) have taken the position that the word
"company" means a for profit business venture and excludes nonprofit institutions,
such as universities, from holding title to intellectual property. While it is true that
ATP is aimed at industry-led research and there is language in the 1991 amend-
ments that is more commonly used in conjunction with business ventures than uni-
versities, at best, the legislation is ambiguous and clearly can be interpreted to per-
mit universities to retain title to patents arising from joint ventures. In addition,
the NIST interpretations ignores the predominance clause in Bayh-Dole inserted by
Congress in the 1980 Act to ensure that Bayh-Dole should not be easily cir-
Nonetheless, NIST issued a Final Rule on January 6, 1994, which codified its in-
terpretation. Fortunately, an amendment to the National Competitiveness Act of
1993 (S. 4) amending Section 28 of the National Institute of Standards Act has been
passed by the Senate and is currently being considered by a Conference Committee.
This amendment would clarify the intent of Congress and thus permit nonprofit in-
stitutions participating in the ATP to retain ownership of inventions made by their
employees. Since Congress has worked consistently to promote cooperation among
the federal government and all research institutions — universities, federal labora-
tories, industry, etc. — nothing should be done to discourage any important player
from participating in the ATP. Thus, it is important that this amendment to (S. 4)
be enacted quickly and the NIST Final Rule be corrected.
Under the incentives provided by Bayh-Dole, the universities have demonstrated
that they can be tremendously creative in developing new technology and in work-
ing with private industry to commercialize it. They should not be discouraged from
continuing to play that role as participants in industry-led joint ventures, such as
those contemplated by ATP.
We are proud of the success of Bayh-Dole and of the universities' efforts to ensure
that university technology is developed and brought to market for the public benefit.
The Act is working well, it should be allowed to continue to do so.
Sheldon Elliot Steinbach,
Vice President and General Counsel.
New England Biomedical Research Coalition,
Washington, DC, April 19, 1994.
Hon. Dennis DeConcini,
Subcommittee on Patents, Copyrights and Trademarks,
U.S. Senate, Washington, DC.
Dear Senator DeConcini: The New England Biomedical Research Coalition is
an affiliation of New England teaching hospitals, universities, independent research
institutes and health care companies organized to preserve and protect the collabo-
rative biomedical research enterprise. This letter presents the Coalition's general
comments on technology transfer for the hearing today being held in the Senate Ju-
diciary Subcommittee on Patent, Copyrights and Trademarks.
Your Subcommittee hearing coincides with an historic debate in America on the
costs and future quality of its health care system. It thus offers a well-timed oppor-
tunity to focus on how technology transfer programs like the Bayh-Dole Act and its
successor, the Federal Technology Transfer Act, are working. It also offers an oppor-
tunity to determine if they might be fine- tuned to work better in developing bio-
medical inventions into products to serve the good of the American people.
For several decades there has been a close and productive working alliance be-
tween universities, research institutes, Government agencies, and private industry
in the area of biomedical research. These relationships were enhanced significantly
during the 1980's through new laws and regulations that improved the collaborative
environment for research and innovation among Government and industry labora-
tories and the nation's research institutions. The partnership was strengthened by
powerful incentives designed to encourage development and commercialization of in-
novative technologies initially discovered during Government-sponsored research.
The new set of policies was designed to: encourage technological innovation on be-
half of American citizens; enhance the international competitiveness of American in-
dustry; maximize Federal research efforts; and increase the level of public benefit
from Government-sponsored research.
These goals have largely been achieved. America leads the world in biomedical re-
search and innovation through the transfer of technology spawned by these policies.
While government agencies, and many of the research institutions they support, do
not have the capacity to take their discoveries from the laboratory to the market-
place, their partners in private industry do. In the health-care field alone, collabo-
rative research and development has given patients access to important thera-
peutics widely used in treating AIDS and a variety of cancers. Thus, technology
transfer bridges the gap between the laboratory and the clinic and ensures regu-
latory approval for new products, thereby yielding tangible benefits for consumers
and taxpayers. Simultaneously, a mounting level of industry financial support — di-
rected to research labs and provided in connection with Federal cooperative agree-
ments — compensates for the widening gap in research dollars created by dwindling
Federal funding for biomedical R&D.
As this history suggests, the transfer of technology between academia, industry,
and Government is the key to development and commercialization of new tech-
THE PRACTICAL BENEFITS OF TECHNOLOGY TRANSFER
How does technology transfer policy benefit members of the New England Bio-
medical Research Coalition? The two facets of technology transfer which our mem-
bers are most familiar with involve licensing of Grovernment-owned and Govern-
• The Bayh-Dole Act of 1980 governs the disposition of patent and other intellec-
tual property rights for Government-funded inventions — patentable discoveries
conceived or first reduced to practice during the course of Government-funded,
extra-mural research carried out at universities and other similar institutions--
and allows the institution conducting the research to keep those rights and li-
cense them to a third-party, including private companies that may be spun-off
from the university.
• The Bayh-Dole Act also authorizes Federal agencies to make Government-
owned inventions — patentable discoveries conceived or first reduced to practice
during the course of intramural research conducted by Cxovernment scientists
working in Government laboratories — available for either exclusive or
nonexclusive licensing to private companies.
• There is a third area that is important to private industry in evaluating product
portfolios: CRADAs. The Federal Technology Transfer Act permits Federal lab-
oratories to enter directly into cooperative research and development agree-
ments (CRADAs) with industry, and establishes incentives for private compa-
nies to enter CRADAs and for Government scientists to continue their research.
The Government laboratory can contribute virtually anything to the research
project except funds — patent rights, supplies, personnel, know-how, data, and
the like. Private companies can contribute all of these things, and provide fund-
ing to the Government as well, either through royalties or direct payments for
CRADA-related activities. To encourage industry participation, the lab can
agree in advance to give any patents resulting from the CRADA to its collabo-
rating partner. To promote continued Government research, any royalties or
other income received goes back to the laboratory involved.
One clear measure of the success of these policies is their effect on the movement
of innovations from university laboratories to the marketplace. For example, be-
tween 1980 and 1990, the percentage of total U.S.-origin patents granted to univer-
sities more than doubled, from 1 percent to 2.4 percent. In this same period, the
number of applications for patents by universities involving NIH-funded inventions
increased more than 300 percent. With respect to licensing, universities granted
over 1,300 new licenses to technology developed in their laboratories in 1992 alone.
These licenses are benefitting both universities and the general economy. In 1989
and 1990, 35 major universities granted 197 exclusive licenses and earned more
than $29.3 milUon in royalties. A recent survey by the Association of University
Technology Managers identified $9 bilUon in product sales and 53,000 jobs arising
from such university licenses.
Critical to this success is the Act's careful system of incentives. Universities may
retain patent title to technology developed through federally funded research; inves-
tors can get exclusive licenses to that technology; and, inventors retain the right to
royalties on their work. Thus, each of these parties is given a direct stake in the
best development of the new technology. Such a system has been key to getting new
technology into the marketplace.
In adcStion, one of the Act's biggest successes — getting industry involved in the
funding of basic research — threatens to become one of its biggest problems. The Act
has contributed to a significant increase in the funding of university R&D by indus-
try. In the past decade, industry support of university research grew faster than did
any other source of funding. Since 1971, the portion of U.S. industry R&D expendi-
tures going to academic institutions has nearly doubled. The problem this provokes
is government scrutiny and interference with the funding arrangements it set out
to encourage. However, universities must remain free to negotiate agreements that
attract industry funding, or the funding will disappear. We believe that any attempt
to require universities to involve themselves in product pricing decisions would dis-
courage university-industry collaborations, much as the "reasonable pricing clause"
seems to have discouraged NIH-industry collaborations.
Also critical to the Act's success is its policy of preserving academic freedom and
independence. Early on, some saw the Act as a potential threat to academic free-
dom. In this view, research support agreements between universities and industry
would distort research priorities with commercial goals. Today, it is clear that the
Act works because it gives universities freedom to manage inventions within broad
parameters. Thus, universities can fine-tune the terms of their commercial relation-
ships to protect against distortion of academic priorities.
The success of the Act does not mean there is no room for improvement. For ex-
ample, comprehensive technology agreements that give exclusive access to an insti-
tution's ftiU range of research may not do enough to guarantee commercial develop-
ment of all that research. Such agreements should perhaps include an incentive to
"use it or lose it," to thus discourage the failure to develop valuable research. This
wovild do more to avoid the risk that important innovations might languish unused
because of the very agreements intended to promote their development. A recent
NIH survey of sponsored research agreements however, showed that technology
transfer managers at the universities and research institutions currently monitor
this potential problem adequately.
THE FUTURE OF TECHNOLOGY TRANSFER
In considering these poUcies, Members of Congress must look to the future. Per-
haps there are ways to further enhance the goals of the technology transfer program
by providing more incentives for the collaborative research enterprise to enter into
important CRADAs that currently have no sponsors? There are at least two good
examples of such important projects that need collaborative funding — development
of anti-addiction therapies and the performance of long-term chemo-prevention
According to the National Institute on Drug Abuse (NIDA), up to six milUon
Americans need drug treatment to break the vicious cycle of drug addiction. As
members of the Judiciary Committee, I am sure you and your colleagues need not
be reminded of the social ills and crime brought on by our nation's illicit drug prob-
lem. Despite this urgent societal need, safe and effective anti-addiction therapies are
not being developed by the private sector or through government programs. Govern-
ment funding is limited and private companies lack adequate incentives to invest
in the development of this class of products. The market is uncertain and there is
a great stigma attached to drug addiction products. Congress could address this
problem through its technology transfer process and a recent Institute of Medicine
study has pointed out this problem.
Chemo prevention— the prophylactic use of drug therapy in patients who do not
yet have cancer, but who are at risk of developing the disease — is a new, but highly
promising, initiative in the ongoing war against cancer. If successful, chemo-preven-
tion studies could yield effective therapies for slowing, or perhaps preventing, the
development of cancer. At a minimum, such trials would provide vital new infonna-
tion about the mechanisms and progression of the disease. To date, the potential
benefits of chemo-prevention have not been adequately tested in long-term clinical
trials again because government funding is limited. Moreover, the time and enor-
mous expense involved in conducting trials whose results may not be known for 20-
30 years operate as a strong disincentive for private companies to invest in these
Congress could address this problem by amending the Technology Transfer Act of
1986— not with reasonable pricing language or government royalty mandates that
provide disincentives— but by adding incentives to get more private money into re-
search. Under existing law, Federal agencies have discretionary authority to offer
a collaborator exclusive marketing rights to a patented product being developed
under a CRADA, and to collect a royalty on that product when it reaches the mar-
ket. That authority allows agencies to negotiate adequate incentives to attract
CRADA partners, and to collect off-budget funding to support additional research.
However, the prospect of having exclusive rights in 20-30 years for chemo-preven-
tion, or in the anti-addiction market, is not an adequate incentive for current pri-
vate-sector investment. Federal agencies should have corresponding discretionary
authority with respect to unpatented products in a collaborator's portfolio. The abil-
ity to attract collaborators should not turn on the vagaries of patent law, but rather
should be driven by the importance of the scientific or societal goal of the govern-
ment agency. _ , , ,
The amendment to the FTTA would allow the collaborating Federal agency the
option to negotiate a CRADA under which it would agree to defer action on applica-
tions for regulatory approval of new versions of an unpatented product in a compa-
ny's portfoUo. The industrial or research collaborator would agree: (1) to collaborate
on important research that otherwise would not be undertaken; and (2) to pay a rea-
sonable royalty to the government. Adding such a tool to the government nego-
tiator's arsenal could help create an incentive for the support of chemo-prevention
studies and the development of anti-addiction therapies. They may also create a val-
uable market for more important collaborations between government, academe and
In promoting technology transfer. Congress must safeguard the public interest by
ensuring rapid and certain access to innovative technologies for taxpayers. At the
same time, we hope that you and the Subcommittee guard against the incHnation
to over-regulate the academic-Government-industry partnership on the grounds that
Federal funds support the enterprise.
Government oversight of industry's funding of collaborative biomedical research
must reflect certain basic principles. First, basic research does not pay for itself As
Federal funding for such research declines, universities and research labs must re-
tain the flexibility to negotiate agreements that attract industry funds. Second, in-
novations do not reach the marketplace by themselves; industry must be able to
profit from bringing them there or they will not be commercialized. Government
should not deny business the incentive to take substantial risks that only comes
from commensurate financial returns. Third, when taxpayers enjoy a return on their
investment in basic research, the form of that return is the availabiUty of innovative
technologies and products. This is the kind of return envisioned bv Congress when
it identified the benefits of technology and industrial innovation: 'improved stand-
ard of living, increased public and private sector productivity, creation of new indus-
tries and employment opportunities, improved public services and enhanced com-
petitiveness of United States products in world markets."
Finally, the administration has repeatedly emphasized its commitment to bring
government and business together to' improve the competitiveness of American in-
dustry. Technology transfer in biomedical research is one area that should not be
left outside of this broad commitment. Indeed, as Congress ponders ways to make
health care coverage more affordable and available you should consider the recent
explosion of new medical knowledge emanating from the nation's collaborative en-
terprise of government, university and private research laboratories.
I would be pleased to discuss these matters with you or your staff. Thank you.
Christopher J. Doherty,
Prepared Statement of Senator Orrin G. Hatch
Thank you, Mr. Chairman. I am pleased to join you in convening this hearing of
the Subcommittee on Patents, Trademarks on the subject of the Bayh-Dole Act. I
am particularly leased to welcome my resent colleague — and leader — Senator Dole,
as well as my former colleague, Senator Bayh, back to the Committee that they both
served so well.
I was an enthusiastic supporter of my colleagues when the Congress enacted the
Bayh-Dole Act, and I am very glad to see them back here today to report to us on
its great success.
The pharmaceutical drug industry is one of the great success stories of the Amer-
ican economy. In large part this success is the result of the foresight of Senators
Bayh and Dole, when they recognized that vdthout adding some economic incentive,
some old-fashioned capitalism if you will, to the pharmaceutical research and devel-
opment process, the public would never receive the benefits of the basic research
that they were paying for.
Bayh-Dole has estabUshed a marketplace mechanism that benefits the public,
benefits university research centers and independent labs, and benefits American
business in general. This marketplace mechanism does this without costing the
American taxpayer huge amounts of money. The monies being spent on basic re-
search before Bayh-Dole were being wasted. Now that money results in useful, often
necessary products for American consumers. And all of this is being accomplished
through the free market. I see no reason why this free-market success story should
be subverted by onerous government regulation.
I was please to join my colleagues in passing Bayh-Dole in 1980, and I am pleased
to join them here today in celebrating its success. 1 hope that we have learned our
lesson that encouraging American businesses to develop and market products is a
better solution to problems than adding more layers of government bureaucracy and
I thank all of you for being here and I yield to the Senator from
Massachusetts, who has been a leader in this area.
Senator DeConcini. Senator Kennedy?
STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR
FROM THE STATE OF MASSACHUSETTS
Senator Kennedy. Thank you very much, Mr. Chairman.
I want to first of all express all of our appreciation for having
this hearing and for your very strong support for area public policy,
which I think is enormously important to our country and to the
United States' position in terms of the economic competitiveness in
the world. I think all of us are very familiar with the strong em-
phasis that President Clinton and the administration have placed
upon technology and innovativeness. I think we are very much
aware that our distinguished colleague, Senator Gore, was enor-
mously impressive in his leadership in related areas in the Senate
prior to the time he has served as vice president.
So the examination of this policy issue is right on target in terms
of trying to find ways of enhancing America's competitiveness and
encouraging that very unique kind of relationship that exists today
between the public and private sector at the universities. The uni-
versities have been one of America's great success stories in the
postwar period. Of the 150 major universities around the world,
126 of them are in the United States.
It has been the combination of research; the combination of the
very creative ways that we have gone about it in terms of encour-
aging young people to go through the universities; and it has been
the way we have involved the private sector, as well, with univer-
sities that has really been unique. That is why we see so niany
countries around the world send some of their best academicians
to our country to try to find ways that they can repUcate the ways
we have been successful.
And in the very precise area of trying to move innovativeness
and new technologies into the private sector, which will ultimately
enhance our capability, is certainly something that is enormously
important for us. I commend my former colleague, who I see here,
Senator Bayh, for his work as well as Senator Dole in the develop-
ment of this legislation. It received some recognition when it was
initially established. I think those that have followed it— particu-
larly as I have seen it work in my own State of Massachusetts —
it has really been an enormously important trigger in terms of the
movement of technology and innovativeness in the commercial
I see our distinguished president of MIT, who will testify about
what has happened at the MIT. But that has been the flagship in
terms of the effectiveness of this policy moving technology and in-
novativeness into the private sector. It has been replicated in many
Finally, I would just say that you have pointed out that impor-
tant responsibility that we have in terms of the investment by our
fellow citizens. Obviously, we want to make sure that their inter-
ests are going to be adequately protected. This is something which
you are very familiar with that we examined in some detail several
months ago when we were talking about precisely the AZT issue.
It is something that we want to be able to give assurances to our
colleagues that the public interest is being protected.
Finally, I would say that we want to also make sure that the
kind of suggestion that has been made in debate in recent times
about how we are using American taxpayer funds that are being
developed in terms of research universities and then being exported
to other countries that are taking advantage of it and using that
to be able to compete with the United States— that is, I believe, a
misinterpretation of what has been happening and what the real
I want to be able to make a record on that issue because there
has been misinterpretation and distortion as well as misrepresen-
tation on the broader kinds of policy issues.
I want to thank the Chairman very much for the leadership pro-
vided. This is a very, very important hearing. As the other hearings
that the Chairman has, I want to thank him very much for it. It
is important and I am grateful for all the work he has done in this
area as well as related areas involved technology and patent and
American economic strength.
I thank the Chairman.
Senator DeConcini. Thank you, Senator Kennedy.
Our first witness will be Senator Birch Bayh.
Mr. Bayh, would you please come forward? Because you are a
former colleague, we won't put you under oath.
We welcome you here. Senator Bayh. Your full statement will be
in the record. Please, summarize it for us.
STATEMENT OF HON. BIRCH BAYH OF BAYH, CONNAUGHTON,
FENSTERHEIM & MALONE, WASHINGTON, DC
Mr. Bayh. Thank you very much, Mr. Chairman.
Senator Kennedy, I appreciate very much your thoughtful re-
You are all familiar with the motivation behind the enactment
of the Bayh-Dole technology transfer legislation. It was based on
the fact that when we approached this problem, as measured in
constant dollars, investment in research and development in the
decade prior to the introduction of the legislation had not increased
at all. We were being really hit over the head by foreign competi-
tors in the contribution they were making to research.
The number of patentable inventions made under federally- sup-
ported research was in decline. Although American productivity
was growing at a much slower rate than that of many of our com-
petitors throughout the world, we had missed the real reason for
that. Simply put, American efforts at innovation, in which we were
once the undisputed world leader — we are stagnating and falling
behind those of other nations.
There is no simple explanation for this, but we examined and
came to the conclusion that there was a real shortcoming in our ef-
forts to try to find a way to take government research and transfer
the technology that had been developed into meaningful programs
for people who had paid the taxes to develop a research. It was the
area of federally-funded research conducted by universities and
small businesses where we thought the effort could be enhanced.
We noticed that the U.S. Government was spending almost $30
billion a year for research and development and the results of these
efforts were that almost none of them really reached the market-
place where there could be a benefit from them. We came to the
realization that one of the reasons for this failure was the Govern-
ment's patent policy. That is why we sought to draft this legisla-
tion, which could change this policy in a way quickly and directly
to stimulate the development of commercialization of the inven-
tions — get them out where people could utilize them.
Traditional patent policy, as you know very well, provided that
the Government would always retain rights to any intellectual
property arising from federally-funded research and that only
nonexclusive licenses of industry would be permitted. I listed to our
former colleague, Russell Long, who was probably the number one
champion of maintaining this protection — all of us are concerned
about protecting the taxpayer, but when you spend $30 billion and
you get very little out of it, I don't think the taxpayers were being
By 1978, what we found out when you and your ranking Repub-
lican, Senator Hatch, and others joined in this effort, was that the
Federal Government owned 78,000 patents and only 5 percent of
them were ever licensed. So the Federal tax dollars were really
The legislation to which you refer was designed to inject the in-
centive of the free market into this lumbering system. We do a lot
of talking in the Congress and generally throughout the country
about the free enterprise system, but I have never seen a better ex-
ample of how it would really work as it is supposed to because this
permitted universities and small businesses to retain patent rights
to inventions developed with the support of the Federal Govern-
It also provided that the inventors would have an additional mo-
tivation, and thus that they would stay with the process through
a royalty-sharing agreement with the inventor. He or she would be
encouraged to assist in taking his or her discovery from the concept
to the marketplace.
The director of the Office of Technology Transfer has helped to
show what this has resulted in as far as meaningful terms is con-
cerned. If we look at what has happened just in very simple termi-
nology and figures, there has been a sharp increase in the number
of U.S. patents issued to universities. While prior to 1981 fewer
than 250 patents were issued to universities per year, a decade
later almost 1,600 patents are year are being issued to universities.
That is more than a 6-fold increase and I think it can be directly
attributed to the free market aspect of Bayh-Dole.
A recent survey conducted by the Association of University Tech-
nology Managers reported 2,700 patents filed by universities and
other research institutions in 1982. Over 150 licenses have been
granted. Royalty revenues to universities were $130 million in fis-
cal year 1991 and grew to approximately $172 million in fiscal year_
1992. Royalties received by all entities under the act were almost
$200 million and $259 million during this same period.
Over 50 new companies had been started through licenses grant-
ed by the Massachusetts Institute of Technology alone. MIT is
making a significant contribution to this.
Now, Dr. Stevens — who I think is going to testify later — took this
manager's report, the AUTM study, and estimated that the direct
economic impact of the act has resulted in the creation of markets
of between $9 billion and $13 billion in product sales, between
50,000 and 100,000 new jobs, and tax revenues of over $2 biUion
to Federal, State, and local entities. So you can get some perspec-
tive of the impact of this legislation.
Congress, of course, followed Bayh-Dole with two important
pieces of legislation, the Federal Technology Transfer Act of 1986
that would encourage Federal laboratories to enter into cooperative
research with private industry, and also the advanced technology
program in 1988 which would encourage direct assistance to busi-
ness and joint ventures in developing new technology.
Mr. Chairman, I think that one of the key elements of Bayh-Dole
was that it emphasized — ^you emphasized as a joint sponsor and
supporter of this — that there be a common effort between the Fed-
eral Government, universities, independent research organizations.
Federal laboratories, and industry in a common effort where there
was going to be cooperation among all the parties with one goal in
mind: more technology transfer, more impact on the productive
process, more innovative ways of producing the United States of
America. I believe this cooperative effort should continue.
I must confess that I am concerned that the officials administer-
ing the advanced technology program at the Department of Com-
merce have taken the position that Bayh-Dole does not apply to
that program and only for-profit business ventures can hold title to
intellectual property, thus excluding nonprofit institutions such as
universities from acquiring property rights in joint ventures in
which they participate.
I also understand that a similar position is being taken by the
Advanced Research Projects Agency at the Department of Defense.
I am sure those are well-intentioned and I assume that some indi-
viduals who are responsible for that will have an opportunity to ex-
plain the motivation behind this. I am sure the motivation is cer-
tainly one of best intention, but in my judgment these positions
cannot and should not be permitted. They cannot be justified and
I would suggest that they shouldn't be permitted to continue.
The policy behind all the technology transfer programs we are
discussing here this morning was to harness all the research and
all the resources to promote the development of new technology
and the commercialization of that technology. To say that in two
areas we are going to exclude those institutions that have proven
how successful it works it seems to me is not only to ignore success
but to try to lessen it.
I don't think that is the intent, but Mr. Chairman, I fear that
is the result.
I am also concerned about some proposals being made to impose
price controls. The whole benefit and thrust of this technology
transfer in the various legislation has been to rely on the commer-
cialization — as I have said earlier — to let the free enterprise system
work. I fear that price controls would discourage industry and not-
for-profit institutions from participating in these CRADA's that
have been formed under the latest legislation.
In fact, that has already begun to take place at the National In-
stitutes of Health, which has administratively undertaken a form
of price control. The number of CRADA's has dropped from 126 in
1992 to 26 in 1993.
So Mr. Chairman, I salute you for the legislation you have pro-
posed. There is an effort to address this in a compromise version
of S. 4. But I urge you to find a way to protect the taxpayer with-
out imposing those kind of controls that destroy the very incentive
that has provided the very successful impetus behind the Bayh-
Mr. Chairman, let me resist the temptation to succumb to an
endless discussion of this.
[The prepared statement of Senator Bayh follows:]
Prepared Statement of Hon. Birch Bayh
Mr. Chairman, I want to thank you for inviting me to testify this morning on the
Bayh-Dale Act. I particularly appreciate the opportunity to share my views with
your Subcommittee since, if memory serves correctly, both you and the ranking Re-
publican member of the Subcommittee were original co-sponsors of this legislation
when it was first introduced in 1978. As you will recall the situation at that time,
there was considerable concern that the United States was falling behind in its tra-
ditional role of international leadership in technological innovation. As measured in
constant dollars, investment in research and development in the decade prior to the
introduction of the legislation had not increased at all. The number of patentable
inventions made under federally supported research was in decline. American pro-
ductivity was growing at a much slower rate than that of many of our world com-
petitors. Simply put, American efforts at innovation, in which we were once the un-
disputed world leader, were stagnating and falUng behind those of other nations.
There were a number of theories on the various causes of these problems, but
clearly the United States needed to develop a more effective overall technology
transfer policy. Senator Dole and I agreed that there was an opportunity in one par-
ticular area where we could begin the process of providing a comprehensive tech-
nology transfer pohcy for the United States. This was in the area of federally funded
research conducted by universities and small businesses. We noticed that while the
United States government was spending almost $30 billion a year for research and
development the results of these efforts almost never found their way into the mar-
ketplace. The taxpayers were getting almost no return on their investment. We
came to the realization that this failure to move from abstract research into useful
commercial innovation was largely a result of the government's patent policy and
we sought to draft legislation which would change this poHcy in a way to quickly
and directly stimulate the development and commercialization of inventions.
Traditional patent policy in this area had always required that the government
retain rights to any intellectual property arising from federally funded research and
provided for only nonexclusive licenses to industry. The theory underlying this pol-
icy was that any economic rewards resulting from federally funded research and de-
velopment should be largely captured by the government, for the benefit of the tax-
payers, and generally not shared on an exclusive basis with non-governmental enti-
ties. However, the actual impact of the policy was that there was absolutely no in-
centive to develop government financed inventions for the commercial market. Con-
sequently any discoveries made through this research sat on the shelf gathering
dust. By 1978 the Federal Government owned 28,000 patents and only 5 percent
had ever been licensed. Federal tax dollars were being wasted by engaging in re-
search which rarely, if ever, resulted in a useful product. This pohcy was not only
wasting tax dollars, but it had a very negative impact on U.S. technological innova-
tions and undercut American competitiveness.
The Bayh-Dole bill was designed to inject the incentive of the free market into
this slumbering system. It permitted universities and small businesses to retain
patent rights to inventions developed with the support of the Federal Government
so that technology could be licensed to private companies and new products could
be bought to the marketplace.
It also provided for additional motivation for inventors by reqmnng umversities
and small businesses operating under the Act to have a royalty sharing agreement
with the inventor. Thus, the individual researcher was encouraged to assist in tak-
ing his or her discovery from concept to marketable product, rather than removing
himself or herself from the process after the basic research and simply publishing
an academic article. The legislation sought to strike a careful balance between the
rights of the Federal Government to use inventions arising out of research that the
Federal Government helped to support, and the equally important right of the pub-
lic to see that the inventions realized their full potential in the marketplace and ac-
tually reached the people that they would benefit. t^ l r^ i
Mr. Chairman, all indications are that since its enactment in 1980, the Bayh-Uole
Act is working and, in fact, working remarkably well. The Act has motivated umver-
sities to become actively involved in transferring technology from their laboratories
to the marketplace. A report on Bayh-Dole issued by the Council on Governmental
Relations concluded that the clear patent policy estabUshed by the Act, which al-
lowed universities to retain title to and license their inventions, has been a healthy
incentive for universities to commercialize their inventions and has resulted in a
sharp increase in the number of U.S. patents issued to universities. While prior to
1981 fewer than 250 patents were issued to universities per year, a decade later
almost 1,600 are being issued to universities each year.
A recent survey conducted by the Association of University Technology Managers
reported 2,700 U.S. patents filed by university and other research institutions in
1992. Over 1,500 licenses have been granted. Royalty revenues to universities were
$130 miUion in fiscal year 1991 and grew to approximately $172 milUon m Ascaj
year 1992. Royalties received by all entities under the Act were $199,516,739 and
$259,305,404 million for the same time periods. Over 50 new companies have been
started through Ucenses granted by the Massachusetts Institute of Technology
The director of the Office of Technology Transfer at the Dana Farber Cancer Insti-
tute Dr Ashley Stevens, has made some preliminary estimates of the economic con-
sequences of the Bayh-Dole Act based on the results of the Manager's survey. He
estimates that the direct economic impact of the Act has resulted in the creation
of markets with between $9-$13 billion in product sales, 50,000 to 100,000 new jobs
and tax revenues of over $2 billion to federal, state and local governments. More-
over, this remarkable burst of economic activity has been achieved without the ex-
penditure of one nickel of taxpayers money. , ■, • .^u
As you know, Mr. Chairman, Congress has built on the foundation laid in the
Bayh-Dole Act by enacting the Federal Technology Transfer Act of 1986 to encour-
age federal laboratories to enter into cooperative research with private industry, and
the Advanced Technology Program in 1988 to provide direct assistance to businesses
and joint ventures in developing new and promising technology. Through these
pieces of legislation, the United States has been developing a complete program of
technological development and transfer into the commercial market. Congress has
rightly involved the Federal Government, universities, independent research organi-
zations, Federal laboratories and industry in a common effort to develop new tech-
nology and bolster the position of the United States in the world economy. The em-
phasis running through these pieces of legislation has been cooperation among all
of these creative institutions who can contribute to the development of technolo^.
I believe this cooperative effort should continue and the vital role of all of these in-
stitutions should be encouraged.
In this regard, Mr. Chairman, I am concerned that the officials administering the
Advanced Technology Program at the Department of Commerce have taken the posi-
tion that the Bayh-Dole Act does not apply to that program and only "for-profit"
business ventures can hold title to intellectual property, thus excluding non-profit
institutions such as universities from acquiring property rights in joint ventures in
which they participate under the program. I also understand that a similar position
is being taken by the Advanced Research Projects Agency at the Department of De-
fense. I don't believe these positions can be justified. The policy behind all of the
technology transfer programs which we are discussing this morning has been to har-
ness all resources to promote the development of new technology and the commer-
cialization of that technology. Nothing should be done to discourage any important
player from participating in programs aimed at achie'/ing this goal. As we have dis-
cussed, under the Bayh-Dole Act the universities have demonstrated that they can
be tremendously creative in developing new technology and working with private in-
dustry to commercialize it. They should not be discouraged from continuing to play
that role in industry-led joint ventures as they would be if the policies at the Ad-
vanced Technology Program or the Advanced Research Policy Agency continue to ex-
clude them from holding title to intellectual property.
At the same time all parties should be monitored and encouraged to engage in
reasonable licensing policies so that basic research can more effectively be turned
into useful commercial products. Unreasonable licensing policies, which thwart the
objectives of technology transfer, should be avoided.
1 am also concerned, Mr. Chairman, over both agency and legislative proposals
to impose price controls on the cooperative research and development agreements
entered into under the Technology Transfer Act. As you know, by their very nature
these efforts involve the kind of basic research and development which is highly
speculative and whose final outcome and ultimate cost is difficult, if not impossible,
to predict. I am fearful that price controls will discourage industry and not-for-profit
institutions from participating in these CRADAs and, therefore, ultimately impair
our technology transfer goals. In fact this has already begun to take place. At the
National Institute of Health, which has administratively undertaken a form of price
control, the number of CRADAs has dropped from 126 in 1992 to 26 in 1993.
If Bayh-Dole has done nothing else, it has proven once again that the American
free enterprise system provides a powerful incentive. This incentive can once again
demonstrate that the intellect and imagination of our citizens, and the technology
they develop, is pre-eminent.
Mr. Chairman, again I want to commend you for holding these hearings. An effi-
cient technology transfer system is essential for a vigorous and competitive United
States economy. We have come a long way since we began to reform that system
in 1980 and I am sure that under your leadership and that of the Subcommittee
we will continue to make progress.
Senator DeConcini. Senator Bayh, thank you for that presen-
tation and the summary of where this legislation may have gone
We know how successful this act has been. It has created a mar-
ket worth $10 billion annually and has provided thousands of jobs.
It is estimated that it generates tax revenue of $2 billion. Looking
at the act today, do you think there should be a greater role for
the Government in participating in any of the revenues derived ei-
ther from the universities or the money that is made by the li-
Now, as I understand it, the universities get a small royalty or
percentage — whatever they negotiate when they grant the license —
but the Federal Government doesn't get anything. The argument is
that the Federal Government benefits from the amount of jobs cre-
ated, technology advanced, sales made by American industry, and
the resulting tax revenues. Do you think there is any merit or any
need for the Federal Government to participate on the entry level
of the license process, particularly in light of the tremendous eco-
nomic problems that our Government faces? This might be called
a user fee on a grant, in essence, if they were to receive even a
small recompense for being part of this process.
What is your observation?
Mr. Bayh. I must say that I share your concern in the dilemma
you face in trying to balance things out and get revenue for needed
services. I must confess that I am glad that you have that respon-
sibility instead of me.
However, I would urge caution. In the study of the figures you
referred to, there is one other line — $2 billion of revenue. It would
seem to me that to apply a small royalty or user fee to the Federal
Government needs to be considered on whether you are getting
more from that revenue than you are going to take out of the tax
pot at the bottom.
The concern I have, Mr. Chairman, is that we have seen — I hap-
pened to have been in the right place at the right time to have had
a role in helping create this legislation. I didn't have anything to
do with implementing it. The private sector together with industry
have made this thing work.
If you look at the track record, wherever the Federal Government
has tried to fine-tune, sometimes it gets across a line and instead
of a plus it is a minus.
There have been one or two examples where the profit has been
exorbitant. Perhaps there is some way you can deal with an exorbi-
tant profit. But I would like to remind you — I don't think you need
to be reminded — that these ideas are all speculative at the begin-
ning. They are very chancy.
Senator DeConcini. Senator Bayh, I appreciate that. I think
what you're telling me is that if it's not broken, don't try to fix it.
My question is, in your opinion, do you think a small percentage
of the license fee going to the Federal Government, or an additional
small percent being charged to the license that would revert to the
Federal Government — do you think that would damage the success
of this act?
I know we don't know how much it would do to reduce the $2
billion annually that comes in here, but what do you think?
Mr. Bayh. I think it would be wrong and self-defeating to estab-
lish a fee up front. If you want to put a percentage on what profit
Senator DeConcini. What about that?
Mr. Bayh. I would find that less onerous.
But here again, I think it all needs to be weighed on the basis
of whether it detracts from incentive from a reasonable profit. And
I want to come back to the concern I have about the NIST and De-
fense Department's unwillingness to use the Bayh-Dole provisions.
This is one area where our piece of legislation has really worked.
To say that Congress would come along and provide a package
where it only belongs to industry — industry is going to have a role.
Industry has a role in Bayh-Dole.
Senator DeConcini. My concern here is that there is some move-
ment here to really get the Government involved with the market
in the early stages. I just see that as the worst thing we could do.
On the other hand, when I think about it, I say that if there are
profits made, is it unreasonable for not just the universities to get
a license fee but for the Federal Government to get a small per-
centage of those profits. Maybe it is. It doesn't offend me like some
of the suggested legislation that would have the Government set
the price of what can be charged and get involved in the whole
Senator DeConcini. Senator Dole, we held this meeting up a
long time for you. We knew you were coming and we want you to
have a chance to speak. You know the rules around here, Senator.
Your full remarks will be inserted in the record and you may have
just as long as you like, since you are the minority leader.
STATEMENT OF HON. ROBERT DOLE, A U.S. SENATOR FROM
THE STATE OF KANSAS
Senator Dole. I am sort of the junior partner in this effort, but
I want to commend my good friend. Birch Bayh, because it was
really his initiative. If you want to make it bipartisan, I am always
Senator DeConcini. No comment. [Laughter.]
Senator Dole. So we agreed to work together. I think we did the
right thing for the reasons Birch has stated and the reasons I have
in my statement, which I will make a part of the record.
We are right in the middle of a Finance Committee hearing on
health care, which seems to be something that is fairly important
these days, so if you don't mind I would put my statement in the
I didn't hear Senator Bayh's statement, but the Government was
spending billions of dollars on research that never saw the light of
day. Then this little bill came along and it has had fair success. We
get little rumblings that maybe there are a few people around who
want to change it. I think that would be a mistake.
We have even had examples in our small State at the Kansas
State University and the University of Kansas where they have
done some very good things that are going to benefit mankind that
they could not have done without the Bayh-Dole effort. Now we
have royalties that exceed $80 million.
Let me just mention a couple.
At the University of Kansas, for example, they have developed a
new compound which allows doctors to administer medicine with-
out worrying about toxic side effects. They have patented this dis-
covery and entered into a license agreement with a pharmaceutical
corporation to bring the new product to market. To me, that is
pretty important. That happened because they were able to operate
under this legislation.
At Kansas State, they developed in conjunction with KICE In-
dustries the KSU flour mill that will meet the food processing
needs of developing countries. Unlike the old mills that cost mil-
lions of dollars and were very difficult to run, this mill is compact
and easy to operate and inexpensive.
So I guess my point is that if there wasn't a good, positive track
record out there that things were happening that were really help-
ful to people, I would say that maybe this was just another thing
that happened in Congress that didn't amount to much.
I just want to express my concern that we know that some Mem-
bers of Congress and some in the Executive Branch have some
problems. It seems to me that we went through price caps back in
the 1970's. I remember President Nixon — of course we wish for his
speedy recovery — imposed price controls. We saw what happened
there. It wasn't a very good idea.
I think if anything, the question you posed to Senator Bayh — if
there are profits, maybe address that side of it.
[The prepared statement of Senator Dole follows:]
Prepared Statement of Senator Robert Dole
Mr. Chairman, I want to thank you and the subcommittee for the opportunity to
speak about the success of the Bayh-Dole Act. as one of its principal authors, I
would also like to express my concerns about legislation that will undermine its
TECHNOLOGY TRANSFER VIRTUALLY NON-EXISTENT BEFORE BAYH-DOLE
Prior to the Bayh-Dole Act, the federal government was spending billions of dol-
lars on research that never saw the light of day. Fewer than 4 percent of the 28,000
government-owned inventions were commercialized prior to 1980. While some might
think otherwise, many of these projects had useful appUcations. The problem was
that the Federal Government held onto to the patent rights. It was very difficult,
if not impossible, for private industry to acquire them. Without the security of an
exclusive license or a patent, companies were reluctant to commit the necessary
time and money to commercialize these products.
Let's face it, R&D is expensive, but it has been estimated that it only accounts
for 25 percent of the cost to bring a new product or process to market. The bottom
line is that business would not invest in new products if it did not have reasonable
INTENT OF BAYH-DOLE
When we drafted the Bayh-Dole Act more than a decade ago we wanted to bolster
cooperation between the Federal Government, private industry and university re-
search faciUties. At the same time, we wanted to encourage greater technology
transfer, to stimulate innovation, to create new jobs, and to expand markets for new
products. There is no question that all these goals have been met.
BENEFITS OF BAYH-DOLE
Accomplishments that can be directly attributed to Bayh-Dole are too numerous
to count. Nonetheless, I would like to take a moment to highlight a few.
On the top of my list would be the biotech industry. This is one of the fastest
growing, most innovative, and most lucrative industries today. Bayh-Dole is univer-
sally credited for helping spur its development, and I am proud to say that I had
a hand in making the U.S. the world leader in this new field.
University patent and licensing activities have also exploded since the act was
signed into law. Former national institutes of health director. Dr. Bernadine Healy,
has noted that during the 1980's patent applications on NIH supported R&D went
from 890 to 2,600.
And university licensing royalties are up. This revenue stream, which is plowed
back into further research, has nearly tripled since 1986. The latest numbers are
in, and roysdties now exceed $80 million each year.
IMPACT ON KANSAS
Let me also note that in my homestate of Kansas, universities have taken full ad-
vantage of technology transfer that Bayh-Dole has made possible. Over the last
three years, 30 patents have been issued to Kansas State University, while the Uni-
versity of Kansas was issued 23 patents.
For instance, the University of Kansas has developed a new compound which will
allow doctors to administer medicine without worrying about toxic side effects. The
university has patented this discovery and entered into a licensing agreement with
Pfizer pharmaceutical corporation to bring this new product to market. KU is also
close to making a scientific breakthrough to improve the treatment of diabetes.
The developments in Kansas have also gone beyond the production of new drugs.
Kansas State University has developed, in conjunction with KICE Industries, the
KSU flour mill that will meet the food processing needs of developing countries. Un-
like old mills that cost millions of dollars and were difficult to run, the KSU mill
is compact, easy to operate, and relatively inexpensive.
CHALLENGES TO BAYH-DOLE
I am very concerned about new initiatives offered by some members of Congress
and some executive agencies that, in my view, fly in the face of the Bayh-Dole Act.
Two specific examples stand out. First, there are those who would jeopardize
Bayh-Dole's cooperative spirit by giving the industrial partner sole right to devel-
oped technology and leave the universities in the cold. Such action will dry up an
important revenue stream for universities and will decimate their research capabili-
Second, a few members would like to increase the Government's role in negotia-
tions on technology developed through federal funding. I should remind my col-
leagues that prior to Bayh-Dole, the Grovernment had total control, and technology
transfer did not happen. Reintroducing government intervention in price setting, ne-
gotiations, and licensing will destroy 13 years of improving technology transfers.
If my colleagues have forgotten that capping prices is a bad idea, let's look back
to the early 70's when President Nixon tried it on prescription drug prices. Research
stagnated, and eventually the caps had to come off. It didn't work then, and it won't
Mr. Chairman, when Congress originally passed Bayh-Dole it took into consider-
ation that unfair advantages or additional government costs may occur. However,
the benefit to society was the overriding concern. It would be a travesty if we were
to reverse ovirselves now. I would urge the subcomxmittee to seriously question pro-
posed changes, as they will only diminish America's ability to bring the most ad-
vanced products to market in a timely fashion.
Senator DeConcini. Is that worth addressing, or should we just
leave it alone?
Senator Dole. I would rather just leave it alone on the theory
of no new taxes. But there may be some way to do that in the
agreement where it doesn't require a mandate. There might be
some way to do it there.
Senator DeConcini. That is my only concern, Senator Dole. If we
are going to address it — and we don't have legislation pending be-
fore us, but we hear a lot of cases where exorbitant profits were
made and there may be ways to touch on that. But it comes to my
mind that maybe there should be a user fee here from the stand-
point of profits. Maybe not. Maybe the Government shouldn't be in
that business. But I have resisted raising user fees for parks, the
Coast Guard, and many other services that are common now.
If you go down to the Patent Office today, they generate hun-
dreds of millions of dollars and we charge everybody hundreds of
millions of dollars. So they are more than sustained now from the
charges. That, to me, is a real mistake, but it is here. It is the re-
ality of what we are doing today.
I thank you for your testimony. I thank you both for your leader-
ship many years ago in putting this thing together. I doubt wheth-
er the voters knew just how many jobs this would create and how
many billions of dollars it would generate in economic benefit to
this country as well as revenues to the Government. I am glad they
Mr. Bayh. I would wish you well on your legislative efforts to try
to perfect some of the efforts being made elsewhere and make them
Senator Dole. I would be happy to explore it at the staff level.
Senator DeConcini. I am tempted not to touch it. It is working
pretty dam well. If we do anything, we need to do something so
that the public is not outraged by some $100 million sale. I have
nothing against big profits, but when it is generated from a grant,
you do have some public responsibility.
Thank you very much. Senator.
Our next witness will be Dr. Daryl Chamblee, Acting Deputy Di-
rector for Science, Policy, and Technology Transfer at the National
Institutes of Health. .
We are pleased to have you here. Your full statement will be in-
serted in the record. Would you, please, summarize your statement
STATEMENT OF DARYL CHAMBLEE, ACTING DEPUTY DIREC-
TOR FOR SCIENCE, POLICY, AND TECHNOLOGY TRANSFER,
NATIONAL INSTITUTES OF HEALTH, BETHESDA, MD
Ms. Chamblee. Good morning, Mr. Chairman.
I am pleased to appear before you today on behalf of Dr. Harold
Varmus, the Director of the National Institutes of Health, to dis-
cuss within the context of Bayh-Dole the role of the National Insti-
tutes of Health in commercializing technology that has been devel-
oped in whole or in part through NIH-supported research.
The mission of the NIH is the pursuit of science to improve
human health. In furtherance of this mission, NIH expends ap-
proximately 80 percent of its $11 billion budget to support research
and research training in institutions throughout this Nation. Our
agency's competitive extramural awards include over 28,000 re-
search awards or grants and about 1,400 contracts involving 1,700
universities, medical centers, and research institutions. NIH and
the institutions it funds conduct cutting edge research that is vital
to the continued strengthening and expansion of our national bio-
medical research enterprise from which many stunning discoveries
have emerged over the last 2-3 decades.
Through efficient technology transfer mechanisms, some of these
discoveries have been translated into commercial products or proc-
esses that prevent the spread of infectious diseases, reduce the in-
cidents of various deadly illness, and relieve human pain and suf-
fering. The Bayh-Dole Act, which governs the transfer of tech-
nology from NIH-funded research institutions to industry is central
to our efforts to facilitate the development of useful preventive di-
agnostic and therapeutic products.
The legislation serves to expedite technology transfer and mini-
mize administrative costs by giving grantee institutions ownership
to inventions developed with Federal funds. Through this statute,
the Congress has encouraged collaboration between commercial
concerns and nonprofit organizations, such as the universities
whose research we fund; promoted the patenting and licensing of
inventions developed with Government funding; and given pref-
erence in such activities to small business firms and those who
manufacture in the United States.
As Senator Bayh suggested, prior to the enactment of Bayh-Dole,
rights to inventions developed with Government support were dealt
with in one of two ways. They would be assigned to the funding
agency and made available to the public through licensing on a
nonexclusive basis, or they could be dedicated to the public through
publication of research results. However, this approach was recog-
nized as stifling collaborations between commercial concerns and
Since the passage of the Bayh-Dole Act, patenting and licensing
are being pursued more aggressively and university collaborations
have proliferated. According to the National Science Foundation,
about one in every four university patents issued in the late 1980's
was for a biomedical or health- related invention. This is in con-
trast to the early 1970's when the ratio was about 1 in 8.
What is also significant is the trend indicating that industrial
funding of academic research is increasing. This increase shows up
in fundamental research as well as in more apphed research. Be-
cause the growth of NIH appropriations has not kept pace v^ith the
rapidly expanding research opportunities, research institutions
have had to look elsewhere for additional support.
The increasing involvement of industry and academic research
and the potential problems associated with such involvement were
first addressed in a series of hearings convened in 1982 by the
House Science and Technology Subcommittee on Investigations and
Oversight. At that time, the committee noted that its "continuing
concern that our universities may be permanently altered by the
increasing number of commercial agreements." Although not view-
ing such agreements as bad, per se, the committee did warn of the
potential to adversely affect one of America's greatest strengths,
that is, the Nation's research universities.
Although the concerns of that committee have not significantly
materialized, the NIH has made over the last year an intensified
effort to learn more about the types of interaction that our grantee
institutions have with industry. We have made this effort in order
to determine whether the Bayh-Dole Act is achieving its ultimate
purposes and to evaluate whether institutions are generally com-
plying with its provisions, and in doing so safeguarding the integ-
rity of academic research.
We have concluded that the Bayh-Dole Act appears to be working
well. However, NIH recognizes the need to provide guidance to its
grantees and their increasingly complex collaboration with indus-
try. We are attempting to fulfill this need.
Over the last year, the NIH has focused a substantial amount of
its attention on what we have referred to as university-industry-
sponsored research agreements to distinguish this type of collabo-
ration from others that might exist. To develop responsible public
policy in this area, the NIH established an internal task force on
the commercialization of intellectual property rights from NIH-
supported extramural research. This group analyzed 375 sponsored
research agreements, held informal round table discussions with
other Government agencies, grantee institutions, and industry, and
recently convened an outside panel of experts in a public forum to
discuss specific issues related to sponsored research agreements.
Most of the sponsored research agreements that NIH reviewed as
part of its survey— that is, 331 or 88 percent of the 375 agree-
ments — represented very small, project-specific arrangements that
typically involve the work of one or two academic scientists and
covered narrowly defined research areas. Moreover, 85 percent of
all the agreements were for periods of 5 years or less. Only 44
agreements out of the 375 were considered large-scale in that they
involved a major component of an institution or the entire intellec-
tual output of a research institution.
Although in most cases licensing rights were promised to indus-
trial partners in advance, the vast majority of agreements re-
stricted the industrial partners' intellectual property rights to par-
ticular project or discreet fields of research. Slightly under half, or
167 of the 375 agreements, were with small businesses. Mr. Chair-
man, 87 percent of the agreements involved United States corpora-
tions or domestic subsidiaries of non-U. S. companies.
The members of our expert panel at our public forum generally
agreed that the Bayh-Dole Act has been effective in promoting
technology transfer in the context of sponsored research agree-
ments. The statute provides benefits to those conducting federally-
funded research as well as serves the public interest by providing
an efficient mechanism for converting federally-funded research
into useful commercial products and by stimulating local econo-
The panel therefore counselled the NIH against instituting strin-
gent rules or further regulations which might threaten the use of
sponsored research agreements. However, the panel also recognized
the usefulness of some guidance from the NIH to its grantees so
that they might better be able to comply with the requirements of
After considering the views of other forum participants drawn
mainly from academic and corporate research communities, the
panel drew the following conclusions related to these five specific
questions posed at the forum regarding NIH's role in ensuring com-
pliance with the Bayh-Dole Act.
First, certain features of university/industry sponsored research
agreements are red flags that signal a need for additional scrutiny.
Second, NIH should take into account a number of economic fac-
tors when considering waivers of the United States manufacturing
requirement that is embedded in Bayh-Dole.
Third, grantee institutions should have the primary responsibil-
ity for ensuring that federally-supported research is commer-
cialized to the extent practicable.
Fourth, although fair access by small businesses to federally-
funded research at grantee institutions appears not to be a prob-
lem, certain safeguards would be helpful in assuring continued suc-
And finally, NIH should take a lead role in promoting basic prin-
ciples of research freedom by providing guidance through policy
statements or educational materials.
In conclusion, Mr. Chairman, the NIH has learned through its
review and analysis of sponsored research agreements that the sit-
nations covered by the agreements are often unique, multi-faceted,
requiring delicate balancing of risks and benefits to the parties in-
volved. In our review, we found that although certain factors neces-
sitated more scrutiny than others, no one factor or provision was
fatal. Rather, the juxtaposition of multiple problematic factors or
causes in an agreement could tip the scale in favor of the interests
of an industrial partner at the expense of the research institution
or the public, thus upsetting an otherwise appropriate balance.
In general, NIH found no marked trend toward large-scale or
megadeals between industry and our grantees. Based on what we
have found from our survey and from discussions of the public
forum, those institutions receiving NIH research support appear to
have implemented the Bayh-Dole legislation effectively and in good
Thank you, Mr. Chairman. I would be happy to answer any ques-
[Ms. Chamblee submitted the following:]
Prepared Statement of Daryl A. Chamblee
Mr. Chairman, I am pleased to appear before you today on behalf of Dr. Harold
Varmus, the Director of the National Institutes of Health (NIH) to discuss the role
of the NIH under the Bayh-Dole Act in the commercialization of technology that has
been developed in part through NIH-supported biomedical research.
The mission of NIH is the pursuit of science to improve human health. In further-
ance of this mission, NIH expends approximately 80 percent of its $11 billion budget
to support research and research training in institutions throughout the Nation.
This is what we call extramural research to distinguish it from research undertaken
by our own scientists in our intramural laboratories. Our agency's competitive extra-
mural awards include over 28,000 research grants and about 1,400 contracts involv-
ing some 1,700 universities, medical centers and research institutions.
NIH and the institutions it funds conduct cutting-edge research that is vital to
the continued strengthening and expansion of our national biomedical research en-
terprise from which many stunning discoveries have emerged over the last two to
three decades. Through efficient technology transfer mechanisms, these discoveries
can be translated into actual commercial products or processes that will prevent the
spread of infectious diseases, reduce the incidence of various deadly illnesses, and
relieve human pain and suffering.
For example, NIH grants have led to the development of an innovative
Hemophilus influenza type B conjugate vaccine, which, in the first year following
hcensure, was administered to infants with significant success, namely, the signifi-
cant reduction in the occurrence of, and death from meningitis. NIH funding has
also supported the development of synthetic hormone hypothalamic releasing hor-
mones, which have been marketed and are used for treatment of prostate and breast
cancer, endometriosis, and precocious puberty.
Technologies, such as the ones used for these products, represent only a small
sampUng of the myriad of lifesaving technologies that have been developed with
objectives of the BAYH-DOLE ACT
The Bayh-Dole Act, which governs the transfer of technology from NIH-funded re-
search institutions to industry, is central to our efforts to facilitate the development
of useful preventive, diagnostic, and therapeutic products. Through this Act, the
• encouraged collaboration between commercial concerns and nonprofit organiza-
tions, such as universities;
• promoted the patenting and Hcensing of inventions developed with Government
• given preference in such activities to small business firms and those who manu-
facture in the United States.
In the interests of expediting technology transfer and minimizing the administra-
tive costs under Bayh-Dole, non-profit institutions are automatically granted first
rights to inventions made by their employees without the funding agency's prior ap-
proval. In short, the institutions have the right to own the inventions developed
through Federal funds.
Prior to enactment of the Bayh-Dole Act, rights to inventions developed with Gov-
ernment support either were generally assigned to the funding agency and were
made available to the public through licensing on a nonexclusive basis or were dedi-
cated to the pubhc through publication of research results.
Recognizing that this approach was stifling collaborations between commercial
concerns and non-profit organizations, discouraging the patenting and licensing of
federally funded inventions, and adversely impacting small business, in 1969, the
Department of Health, Education and Welfare (HEW), the predecessor of the De-
partment of Health and Human Services (DHHS), adopted a policy of granting lim-
ited exclusive licenses to HEW-owned inventions when such action would serve the
public interest. HEW's regulations also provided that the rights to inventions devel-
oped by non-profit institutions under NIH research grant and contract awards could
be retained by the institution if the Department determined, on a case-by-case basis,
that the institution's established procedures could assure the availability of the in-
vention without unreasonable restrictions or excessive royalties. Further, HEW re-
quired that the Government receive a royalty-free, nonexclusive license with the
right to issue sublicenses for all governmental purposes.
HEW implemented these provisions through Institutional Patent Agreements"
(IPAs), which set forth the terms under which an approved institution would retain
title to its inventions and the conditions under which they would be licensed. Prior
to this program's initiation, it appears that not a single drug had been developed
and marketed from HEW-supported research. While HEW's system was a major im-
provement resulting in "a number of potentially important new drugs [being] * * *
delivered to the pubhc through the program involvement of private industry in de-
veloping, testing, and marketing these discoveries," the program eventually became
burdened with administrative delays associated with the case by case review of pat-
ent ownership by the agency.
Moreover, it had become increasingly clear that throughout the Federal govern-
ment, the agencies had failed in their efforts to "* * * deUver new inventions and
processes from their research and development programs to the marketplace where
they can benefit the pubhc." In fact, evidence from a 1976 hearing on "Government
Patent Policy" before the House Science and Technology Subcommittee on Domestic
and International Scientific Planning and Analysis indicated that, of the more that
28,000 patents in the Government's patent portfoUo, less than four percent had been
successftilly licensed. On the other hand, universities that could offer exclusive or
partially exclusive hcenses on their patents if necessary, seemed to fare much better
by licensing 33 percent of their patent portfolios.
Therefore, in 1980, encouraged by the early success of HEWs innovative IPA pro-
gram and predicated on the belief that inventions were more likely to be commer-
cialized if the contractor or grantee, rather than the Government, could retain pat-
ent rights, the Bayh-Dole Act, sponsored by this Committee, was passed.
SUCCESSES OF THE BAYH-DOLE ACT
Fourteen years later it seems that, indeed, new efficiencies have been realized as
incentives have been established, and innovative systems have developed to enhance
rather than impede technology transfer. Since the passage of the Act, patenting and
licensing are being pursued more aggressively and university/industry collaborations
have proliferated. According to the National Science Foundation (NSF), about one
in every four university patents issued in the late 1980's was for a biomedical or
health-related invention. In the early 1970's, the ratio has been about one in eight.
Over the past 14 years, the development of many new, important drugs and de-
vices by both large and small commercial enterprises have been facilitated by the
explosion in the licensing of university-owned inventions. According to a recent sur-
vey conducted by the Association of University Technology Managers, well over 1000
Ucenses or options were executed in Fiscal Year 1992 by the 260 institutions that
were surveyed. In addition, these institutions reported that they had over 5000 ac-
tive licenses in place at the time of the survey.
Also of significant note is the trend by which industrial funding of academic re-
search is increasing, as encouraged by the Bayh-Dole Act. This includes fundamen-
tal research. Because increases in the NIH appropriations have not kept pace with
the rapidly-expanding research opportunities, research institutions have had to look
elsewhere for support. For example, during Fiscal Year 1993, NIH was able to fund
only 24.5 percent of research grant applications submitted by universities and other
non-profit research institutions. Of note is the fact that during the 1970's and
1980's, industrial siipport for university research grew faster than did any other
source of funding. While still representing less than 10 percent of the total funding
for academic research, the NSF recently estimated that nearly 2 percent of U.S. in-
dustry's expenditures for R&D now goes to academic institutions, as compared with
less than 1 percent in 1971.
Science has also become increasingly international, and partnerships between
U.S. universities.small U.S. biotechnology companies, and large multinational com-
panies have increased.
RECENT ISSUES CONCERNING THE BAYH-DOLE ACT
The heightened involvement of industry in academic research and the potential
problems associated with such involvement were first addressed in a series of hear-
ings convened by the House Science and Technology Subcommittee on Investigations
and Oversight. At that time, the Committee noted its "continuing concern that our
universities * * * may be permanently altered by the increasing number of com-
mercial agreements * * *." Although not viewing such agreements as "bad, per se,"
the Committee did warn of the potential to "adversely affect one of America's great-
est strengths" — the Nation's research universities.
Specific concerns of the Committee, at that time, included whether research sup-
port or sponsored research agreements, by which a company provides money to an
institution in return for rights to the institution's intellectual property, would stifle
the free exchange of knowledge, promote secrecy, and distort academic research pri-
orities to conform with commercial aims. A second set of concerns arose from specu-
lation that companies might exploit taxpayer-funded research without providing an
adequate return to the public. A troubling issue was the possibility that a foreign
firm might, "skim the cream produced by decades of taxpayer-fijnded work." Also
raised as an issue was the prospect that universities did not have effective mecha-
nisms to safeguard the integrity of academic institutions and to protect them from
influences that might distort their missions of education, research, and pubhc serv-
REVIEW OF SPONSORED RESEARCH AGREEMENTS
Over the last year, the NIH has made an extensive efibrt to learn more about the
types of interactions that our grantee institutions have with industry so as to deter-
mine whether the Bayh-Dole Act is achieving its ultimate purposes and to evaluate
whether institutions are generally compljdng with its terms and, in the process, pre-
serving the goals and integrity of academic research. Through our efforts, we have
concluded that the Bayh-Dole Act appears to be working well and that the concerns
raised by Congress a decade ago have not significantly materialized. However, the
need for NIH to provide guidance to its grantees in their interactions with industry
is recognized ana the NIH is attempting to meet that need.
Although the interactions between our grantees and industry take many forms in-
cluding industrial liaison programs, spinoff companies, consortiums, commercial li-
censing, material transfer, consulting, and clinical trial agreements, the NIH has fo-
cused a substantial amount of its attention on what it refers to as university/indus-
try-sponsored research agreements to distinguish this type of collaboration from
other types of interactions or means of commercializing research. To develop respon-
sible pubUc pohcy in this area, the NIH established an Internal Task Force on the
Commercialization of Intellectual Property Rights from NIH-supported Extramural
Research. This group analyzed 375 sponsored research agreements, held informal
roundtable discussions with other government agencies, grantee institutions and in-
dustry, and recently convened an outside panel of experts in a public forum to dis-
cuss specific issues related to sponsored research agreements.
The information derived from the informal meetings, together with the results
from NIH's survey of sponsored research agreements and the recommendations and
comments we received from our panel of outside experts at the recent forum, will
provide the basis for the policy guidance we are developing to assist our grantees
and strengthen their future efforts to comply with Bayh-Dole. We intend to present
the draft guidelines to the Advisory Committee to the Director of NIH in June of
this year for review, comment and eventual dissemination.
Most of the sponsored research agreements that NIH reviewed as part of its sur-
vey, i.e., 331 (88 percent) of the 375 agreements, represented small, project specific
arrangements that typically involved the work of only one or two academic scientists
and covered narrowly defined research areas. Moreover, 85 percent of all the agree-
ments were for periods of 5 years or less. Only 44 agreements were considered large-
scale, in that they involve a major component of the institution or the entire intel-
lectual property output of a research institution.
In most cases, licensing rights were promised to industrial partners in advance,
but the vast majority of the agreements restricted the industrial partner's intellec-
tual property rights to particular projects or discrete fields of research. Slightly
under half, or 167 of the 375 agreements, were with small business partners.
Eighty-seven percent of the agreements involved U.S. corporations or domestic sub-
simaries of non-U. S. companies.
From our two ad hoc meetings with industry and grantee representatives, we
learned that the overall consensus in the research community, is that the current
statutory framework for technology transfer has been effective.
The participants at these meetings stressed that the imposition of an additional
set of rigid or elaborate federal rules could prove unwieldy and perhaps disastrous
to often fragile university/industry relationships. However, because varying levels of
experience in university technology transfer offices and ambiguities in the Bayh-
Dole Act have caused increasing levels of uncertainty and some confusion in the aca-
demic community, the participants agreed that guidance from the NIH would be
Our meeting with representatives from other Federal agencies including the De-
partments of Commerce, Energy, Defense, and Agriculture, the National Science
Foundation, the Advanced Research Projects Agency, and the Internal Revenue
Service primarily focused on the degree and type of oversight that Federal agencies
currently exercise or should exercise in relation to collaborations between grantee
institutions and industry. Agency representatives seemed to prefer improved dis-
semination of information and education of the research community as to their obli-
gations under the Bayh-Dole Act rather than the imposition of stringent rules. They
also agreed that the great diversity of agreements that are being developed and the
differences across agencies make it difficult to delineate a single set of fixed stand-
ards. Further, while stringent rules might be appropriate for an agency that pri-
marily awards contracts, it would perhaps not be appropriate for an agency pri-
marily providing assistance in the form of grants where the amount of the grant
is much less.
PUBLIC FORUM ON SPONSORED RESEARCH AGREEMENTS
Based on our ooservations and the recognition of a possible policy void in this
area, on January 25 and 26, 1994, the NIH convened an outside panel of experts
in a public forum to explore and define the nature and scope of NIH's role witn re-
spect to certain provisions of the Bayh-Dole Act. The Panel specifically addressed
the following issues:
• What factors should the NIH consider with regard to the size of asponsored re-
search agreement and the scope of the industrial partner's intellectual property
rights to Federally-funded research when evaluating compUance with the Act's
licensing preference for small businesses?
• How should the NIH implement and monitor the Act's U.S. manufacturing re-
quirement and preference for U.S. industry, given the increasing globalization
of markets and the emergence of multinational corporations?
• How should the NIH monitor and ensure that the Act's objective of promoting
the utilization of inventions derived from Federally-funded research is being
• What is the most effective way for the NIH and grantee institutions to ensure
that small businesses are given adequate access to results of Federally-funded
• What should be the role of NIH with respect to safeguarding core principles of
research freedom and scientific integrity in interactions between its grantees
The 12-member Panel, co-chaired by David M. Livingston, M.D. of the Dana
Farber Cancer Institute in Boston, MA, and Edward Penhoet, Ph.D. of Chiron Cor-
poration in Emeryville, CA, included research scientists, a Nobel Laureate, patent
attorneys, executives and administrators from large pharmaceutical companies,
State and private universities, research institutions and hospitals, and small bio-
The members of the Panel generally agreed that the Bayh-Dole Act has been ef-
fective in promoting technology transfer. As it has been implemented, it provides
benefits for those conducting Federally-funded research, it also serves the public in-
terest by stimulating local economies and providing an efficient mechanism for de-
veloping Federally-mnded research into useful commercial products. The Panel
therefore advised the NIH against the implementation of stringent rules and/or fur-
ther regulations. However, the Panel also recognized the usefulness of some guid-
ance from the NIH to its grantees so that they may better comply with certain re-
quirements of the Act.
In response to NIH's request for meaningful dialogue on and consideration ot the
issues noted above, and after considering the views of other forum participants,
drawn mainly from the academic and corporate research communities, the panel
drew the following conclusions relative to the five specific questions regarding NIH's
role in ensuring compliance with the Bayh-Dole Act:
I. Certain features of university/industry-sponsored research agreements
are useful alerts for additional scrutiny. Heightened scrutiny is advised for
all exceptionally large, or "mega-scale" agreements and may also be advised
for those that meet one or several threshold criteria, such as (1) exceeding
$5 million per year or $50 million overall, (2) involving several principal in-
vestigators or entire departments or major components of an institution, or
(3) specifying rights to technology for an undue period of time. The Panel
cautioned against the mandatory review of these agreements by the NIH,
noting that the undue administrative burden on grantees and the adverse
impact on technology transfer could far outweigh any actual benefit that
could be derived from a mandatory review.
II. NIH should regard a number of economic factors when considering
waivers of the U.S. manufacturing requirement. The Panel urged NIH offi-
cials to continue to implement a flexible policy for fulfilling this part of the
law since, in the biomedical area it may not be commercially feasible to
manufacture the product in the United States. Moreover, important public
health and other economic benefits could be lost, if product development is
delayed because of rigid enforcement of this provision.
The Panel also noted that, as national boundaries are increasingly ig-
nored while science and science-based industries become more global in
focus, it is becoming increasingly difficult to distinguish foreign and domes-
tic entities. Moreover, these distinctions can be muddled further when a so-
called U.S. corporation chooses to manufacture certain products in off-shore
facilities or when a foreign corporation manufactures its products at a U.S.
subsidiary. , ,. i-
III. The Panel recommended that the primary responsibihty for ensuring
that Federally-supported research is being licensed and made available as
well as being useful to the public, should reside with grantee institutions.
Noting that grantees are more familiar with the licensed technology, capa-
bilities of the licensee, and the market for a particular product, the Panel
underscored the fact that the institutions are far better suited than the
NIH to undertake the responsibility of overseeing compliance with the utiU-
zation requirement of the Act. The Panel indicated that the use and active
enforcement of performance benchmarks and diligence requirements would
greatly enhance grantees' capabilities to meet this oversight responsibihty.
IV. After recognizing that fair access of small businesses to Federally-
funded research at grantee institutions is not a problem, the Panel rec-
ommended certain safeguards that would be useful for grantees to imple-
ment. For example, option periods for granting Ucenses should be time lim-
ited so that other companies may have timely opportunities to license tech-
nology; and once a company decides not to exercise its option right it should
not be given a second opportunity to obtain such rights by matching an-
other party offer for the rights. In addition, the Panel noted the importance
of looking at fair access in terms of the entire research program at an insti-
tution as opposed to access to a particular project or invention.
The Panel also suggested that the NIH take a lead role in promoting
basic principles of research freedom by providing guidance through policy
statements or other educational materials. According to the Panel, such
statements or materials should stress the freedom of researchers to choose
projects; to collaborate with other academic scientists; to decide whether or
not to participate in sponsored research agreement programs; and to pub-
lish and otherwise disseminate research findings.
On the fundamental issue of the NIH role in assuring that grantees comply with
requirements of the Bayh-Dole Act, Panel members recommended that NIH develop
general guideUnes or other educational materials to be used by administrators and
scientists at universities and other non-profit institutions. Panel members believe
that these guidance materials should be presented by NIH to grantees as informal
examples and "points to consider," not as binding rules for universities and other
institutions The only exception to the Panel's recommendation for non-binding
guidelines relates to issues of academic freedom, which the Panel urged NIH to up-
hold forcefully and unequivocally.
Panel members not only recommended against new restrictions, but also urged
NIH not to increase reporting requirements, which absorb resources, such as time
and personnel, and would thus tend to retard the overall process of technology
transfer and conflict with a stated objective of the Bayh-Dole Act to minimize the
cost of administering patents.
The NIH will consider the Panel's recommendations as it develops public policy
in this area.
The NIH has learned through its review and analysis of sponsored research agree-
ments that the situations covered by the agreements are often unique and multi-
farious, requiring delicate balancing of risks and benefits to the parties involved. In
our review, we found that, although certain factors necessitated more scrutiny than
others, no one factor or provision was fatal. Rather, the jttxtaposition of multiple
problematic factors or clauses in an agreement sometimes tipped the scale in favor
of the interests of an industrial partner at the expense of the research institution
or the public, thus upsetting an otherwise appropriate balance.
In general, NIH found no marked trend per se towards the large-scale or mega-
deals. Abuse of the provision and objectives of the Bayh-Dole Act was not wide-
spread and efforts towards compliance appeared creative and effective.
Technology transfer is the vehicle through which the fruits of NIH funded re-
search are transferred to industry to be ultimately developed into diagnostic and
therapeutic products to advance human health. In a dynamic, multifaceted, multi-
national marketplace, if the United States is to remain a world leader in techno-
logical and scientific innovation, both the public and private sectors must work to-
gether to foster rapid development and commercialization of useful products to bene-
fit human health, stimulate the economy and enhance our international competitive-
ness, — while at the same time protecting taxpayers' investment and safeguarding
the principles of scientific integrity and academic freedom.
Department of Health and Human Services,
Public Health Service,
Hon. Dennis DeConce^ji,
U.S. Senate, Washington, DC.
Dear Senator DeConcini: Thank you for your thoughtful letter of April 29 and
for providing The the opportunity to testify at the April 19 hearing of vour Sub-
committee on "The Bayh-Dole Act: A Review of Patent Issues in Federally Funded
During the hearing incorrect figures were presented by one of the witnesses re-
garding the number of Cooperative Research and Development Agreements
(CRADAs) at the National Institutes of Health in 1993. These figures appear to
have been taken from erroneous data contained on page 83 of a recent Institute of
Medicine (lOM) report entitled, "Development of Anti-Addiction Medications: Issues
for the Grovernment and Private Sector." I have subsequently received frog lOM the
enclosed erratum addressing the erroneous information, which I would like to be in-
cluded in the hearing record.
I appreciate your consideration of my request and would be pleased to provide any
additional information necessary.
Daryl a. (Sandy) Chamblee, J.D.,
Acting Deputy Director,
Science Policy Technology Transfer.
On page 83 of this report it is stated that the number of Cooperative Research
and Development Agreements (CRADAs) at the National Institutes of Health have
"dropped from 126 in 1992 to about 26 in 1993". Thai information compared the
total CRADA in 1992 (NIH Data Book, 1993) with newly initiated CRADAs in 1993
(personal communication with NIH. Office of Technology Transfer). This sentence
should be deleted, because, at this time, the Office of Technology Transfer is in the
process of reconciling their records with the numbers of CRADAs recorded for each
institute. The committee's recommendation remains unaffected.
Senator DeConcini. Thank you, Dr. Chamblee, very much.
I know you are aware of the infamous case of Scripps, which gar-
nered so much negative attention.
Would you explain the background of this agreement to the sub-
committee? What has NIH done to prevent this kind of agreement
from happening in the future?
Ms. Chamblee. I might say that the genesis of much of our activ-
ity of late in this area was as a result of that particular agreement.
When it came to our attention, we asked for a copy of the agree-
ment and had proceeded basically along parallel tracks. In other
words, we have reviewed the agreement, raised concerns about the
agreement, and have gone through a series of discussions with the
Scripps' representatives — Scripps being our grantee — to try to iron
out some of our concerns.
At the same time, we have gone down the other track of trying
to see whether sponsored research agreement — of which this is
one — generally out in the community were of the same nature, that
is, a very broad agreement covering the research output of an en-
tire institution and raising various types of concerns about aca-
demic freedom and access of small business to the results of the re-
search and that sort of thing.
We are trying to look at the agreement. We have been looking
at the agreement. We have been discussing our concerns with
Scripps through a series of meetings hoping that the agreement
can be resolved in such a way that it will be useful to all parties
concerned. And at the same time, the review of other agreements
that I discussed was the result of our desire to see if there were
other agreements like that in the community.
Senator DeConcini. But you don't know whether this was just
an aberration or how many other cases there are?
Ms. Chamblee. Based upon our review, it is an aberration.
Senator DeConcini. What would be your generic solution to pre-
vent this from happening again? Does NIH have an answer that
would involve some condition be attached to the grants, other than
perhaps getting involved with setting the price of the final product?
Ms. Chamblee. The solution that we think is the most appro-
priate under the circumstances is a solution based upon guidance
to our grantees and vigilance. As part of this process of looking at
the 375 agreements and having a public discussion of the benefits
and/or advantages and disadvantages of sponsored research agree-
ments, we will come up with guidelines for our grantees or points
for them to consider when entering into these types of agreements.
Senator DeConcini. What is the hammer? That you might not
get another grant if you don't cooperate?
Ms. Chamblee. That is an ultimate hammer, and it is an effec-
tive hammer, but
Senator DeConcini. So you would consult with them about it on
the basis that you think it is in their best interest, as well as
yours, that they include these things in the license agreement be-
cause you don't want something like this to occur?
Ms. Chamblee. When we are talking about sponsored research
agreements, we are way before the stage of a license agreement.
We are talking about collaboration sometimes at a very, very early
stage. Although we recognize that our grantees must be mindful of
what comes down the pike and what sorts of clauses are in the ulti-
mate license agreements that might be generated, we are talking
at a stage that is much farther back in the whole continuum than
a licensing clause.
But as I said before, our grantees have been very forthcoming in
addressing our concerns and are looking for guidance from us as
far as what they should be looking for and what problems may be
raised by these kinds of agreements.
Senator DeConcini. Are you satisfied that the universities mon-
itor these license agreements? I know the panel that was put to-
gether recommended that to ensure Federal support of research
that is being licensed, that the responsibility should stay and re-
side with the universities instead of the Federal Government. Are
you satisfied that the universities monitor these, with the exception
Ms. Chamblee. I think they are monitoring them. I think that
in the future — we have a role as far as monitoring and vigilance
as well. I think that our role has to be a balanced one. To a large
extent, we must rely on our grantees to act in good faith and to
watch also for the incentives to them to make sure that they are
licensing appropriate and getting appropriate royalties back, be-
cause that goes back into their coffers and benefits their research.
I think that kind of a balanced vigilance on both of our parts is
Senator DeCoNCINI. The underlying legislation indicates re-
search and licenses to U.S. industry. How does NIH interpret this
as to off-shore licensing? Is that permitted?
Ms. Chamblee. Well, there is a provision that products to be
used and sold in the United States that are licensed under exclu-
sive licenses be substantially manufactured in the United States.
That is a requirement, although there is a provision for a waiver
in circumstances where it is not commercially feasible to produce
or manufacture a product in the United States.
The legislation was probably written that way because it is hard
to decipher what is really a U.S. company versus what is not in
this kind of global world that we are currently living in.
Senator DeConcini. Under the current regulations, I understand
that the universities can and do grant exclusive licenses. Does the
NIH object to the granting of exclusive licenses?
Ms. Chamblee. I don't think we object to it where it is appro-
Senator DeConcini. There is a provision in this bill, which
maybe you can explain to me. It is termed here as the march-in
rights of the Federal Government. Does this mean that if the Fed-
eral agency determines that a licensee is not making good use of
the product the licensee can be forced to provide a nonexclusive li-
cense to another entity? Is that in essence what that is? Has it
Ms. Chamblee. When there was a shift that was occasioned by
Bayh-Dole that took NIH and the Federal Government out of the
middle of commercializing all the products of the research that we
funded — that march-in right was left to us. That is what I call one
91-388 - 95 - 2
of the residual rights that we retained when we were taken out of
In the event that there is a situation where a product is not
being utilized or developed, we do have those rights. We have not
in the past used them. Sometimes just — as you mentioned before —
the ability to say that you are concerned with what they are doing
and that their grant is endanger is an ability to influence. Some-
times the ability to say that we are concerned about the develop-
ment and ask them to explain to us how the product is being devel-
Having in your back pocket march-in rights is enough. We have
not had to
Senator DeConcini. You have never used them?
Ms. Chamblee. No, we have not.
Senator DeConcini. But you wouldn't hesitate to use them if you
felt it was necessary?
Ms. Chamblee. As I said, we have been taken out of the middle
of this. The notion is that they would be used extremely sparingly.
I think we would have to look very cautiously at a situation that
would justify that.
Senator DeConcini. And you haven't had any examples come to
Ms. Chamblee. No, we have not.
Senator DeConcini. Thank you very much. Dr. Chamblee. We
appreciate your testimony today. It is very helpful.
Ms. Chamblee. Thank you.
Senator DeConcini. Our last panel will be Dr. Gary Munsinger,
president, Research Corporation Technology; Dr. Charles M. Vest,
President, MIT; Ms. Barbara Conta, director of Technology Trans-
fer, Regeneron Pharmaceutical Corporation; and Howard Bremer,
Association of University Technology Managers.
Would you ladies and gentleman would all come forward, please?
We will begin with Dr. Bremer.
You may all insert your full statements in the record and I would
appreciate it if you would summarize them for us.
STATEMENT OF HOWARD BREMER, ASSOCIATION OF
UNIVERSITY TECHNOLOGY MANAGERS, MADISON, WI
Mr. Bremer. Thank you, Mr. Chairman.
The organizations for which I speak today are the Association of
University Technology Managers and the Council on Governmental
I personally also appreciate the opportunity to present the collec-
tive views we all have on the experience and success of technology
transfer under Bayh-Dole.
Rather than focus on statistics today, which are adequately sup-
plied in the written testimony, I believe the current political cli-
mate makes it advisable to review Bayh-Dole in the background
and philosophy of the act, with which many are not familiar. At the
outset, in assessing the impact of the Bayh-Dole Act, we must keep
in mind two very significant facts. One, the university system in
the United States is unique in the world in its contributions to the
competitive position of the United States in the global economy.
Two, small business is the major contributor to jobs in the United
States through innovation.
We must also not lose sight of the fact that the Bayh-Dole Act
arose out of an evolutional process based upon imaginative fore-
sight in a very hostile bureaucratic and legislative environment
and upon experience. Prior to the passage of Bayh-Dole, the con-
tractor university had the opportunity to petition for greater rights,
including the transfer of title under any inventions made with Fed-
eral funds before certain of the Government agencies.
Generally in the few cases where such greater rights were con-
veyed, the rights were so fraught with restrictions on the licensee
that they were unacceptable to the intended industrial partner,
and therefore the technology was never transferred. Then after
many years of effort, beginning in the early 1960's, an institutional
patent agreement, or IPA, was negotiated with what was then the
Department of Health, Education, and Welfare. The first IPA be-
came effective in 1968.
Under that arrangement, titHng the inventions made with funds
provided by that agency were passed to the universities subject to
certain limitations. After another 5 years of negotiation with the
National Science Foundation, that agency, too, in 1973 adopted the
IPA approach with perhaps slightly greater restrictions.
These IPA's and the experience generated in practice under them
led ultimately to the Bayh-Dole Act and its passage in 1980. Con-
sequently, the Bayh-Dole Act, as well as its implementing regula-
tions, were crafted not in a vacuum but as a result of past experi-
ence gained in practice under the IPA's. The act was, in essence,
a codification of most of the terms and provisions negotiated into
the IPA's by the universities and the two agencies I mentioned.
That means, of course, that the principles of Bayh-Dole have been
working, and have been working well since long before the date of
the act itself, but not on a Government-wide basis.
Technology transfer under Bayh-Dole, too, has been evolutionary
with a larger number of universities and nonprofit organizations
who are participating in each succeeding year, all to the benefit of
society. In 1993, the total number of patents issued to universities
numbered 1,670, and when hospitals and nonprofit organizations
who qualify for treatment under Bayh-Dole are added, the total
number of patents issued becomes 2,024. It is also worthy to note
that the patents were issued to 134 separate universities and 29
separate hospitals and nonprofit organizations.
The real measure of technology transfer is not of course the num-
ber of patents which the university sector holds, but the amount
of technology represented by those patents, which have been trans-
ferred for development for the marketplace. In a very recent survey
by the Association of University Technology Managers, in an effort
to provide evidence that university efforts are indeed responsive to
the principles of Bayh-Dole and achieving the goals it envisioned,
I have the following information.
A response obtained from 44 institutions which did participate
reported that 178 products in the market have been licensed to 439
entities. Of the licenses granted, 312 are nonexclusive and 127 are
exclusive. But whether exclusive or nonexclusive, about 60 percent
have been with small business and the remaining percentage with
The formation of a total of 338 start-up companies since 1980
were dependent upon the licensing of the institution's technology
for initiation. Those were 36 respondents. Of the 178 products re-
ported in the survey, 35 new companies were created in support of
the inventions and discoveries.
The data is without question rather significant when viewed
from an economic perspective. But what should not be overlooked
is the inestimable value of products arising from university inven-
tions which have or exhibit the capabilities of saving lives or im-
proving the lives, safety, and health of the citizens of the United
States and around the world.
Those statistics and the testimony of others here today will clear-
ly bear out the position that we have taken. I believe it can be un-
equivocally said that practice under the Bayh-Dole Act has been
fully responsive to the policies and objectives which Congress
sought in the passage of the act, as recited in 35 USC section 200.
Why has the act been so successful? I believe one of the major
reasons is the certainty of title to the inventions, which was con-
veyed to the universities under the act. That fact alone gave strong
impetus to the university-industry relationship. Industry could rely
upon the licensing terms and provisions negotiated because of the
vesting of the title in the university and without fear that there
would be arbitrary or capricious bureaucratic interference. Since
the Government reserved a nonexclusive license for governmental
purposes, the relation established was really a relationship be-
tween the university, industry, and the Government.
Moreover, and based upon increasing experience, industry be-
came familiar with and comfortable with the protective provisions
in Bayh-Dole, the foremost of which was the march-in right provi-
sion that Dr. Chamblee mentioned. It became evident that the
march-in could not be arbitrarily applied by the Federal agency in
a licensing situation.
Another reason for the success of Bayh-Dole was that the inven-
tors became part of the technology transfer equation by interfacing
directly with the licensee, a situation that did not happen when
Government agencies were taking title to inventions made with
Still another factor was that Bayh-Dole and its implementing
regulations arose out of experience and therefore contained
thoughtfully considered and reasonable protective provisions
against abusive practice by the university licensor and its licensee
and against arbitrary decisions by the Government agencies, while
still affording necessary protective mechanisms in the national in-
Bayh-Dole has carefully balanced the interests of the parties af-
fected — that is, the universities, the private sector, and the Govern-
ment. Because of that background, the principles upon which the
act was based and its terms and provisions, as well as its imple-
menting regulations, are as viable and timely today and for the fu-
ture as when the act was passed in 1980.
Also not to be overlooked is that Bayh-Dole was the first piece
of legislation to explicitly convey to the Government the right to
own patents. The direct outgrowth of that provision was the Fed-
eral Technology Transfer Act, which was referred to earlier. That
- act was intended to promote utilization of technology generated in
Government-owned and operated laboratories. It was largely a re-
sponse to increasingly tough international competition facing the
Its principles were first tested under Bayh-Dole and many of its
provisions comport fully with those in the Bayh-Dole Act. It thus
responded to the lessons learned under Bayh-Dole, perhaps the
most important of which was Bayh-Dole's success in promoting uni-
versity and industry cooperation.
One of my colleagues just before this meeting said to me:
Remember that Bayh-Dole was one of the very few, perhaps the only piece of leg-
islation with a very positive impact on the economy, but which required no appro-
priation from commerce.
Mr. Chairman, because of the time factors, that will conclude my
oral testimony. The opportunity to present it is appreciated. I
would, however, like to put into the record of this hearing two pam-
phlets which were generated by the Council on Governmental Rela-
tions relating to Bayh-Dole and to technology transfer under that
act, and also a key note address which I gave to the Texas Tech-
nology Transfer Association in September 1992 entitled, "10 Years
after Public Law 96-517," which more completely outlines the
background and effect of the Bayh-Dole Act and supports its con-
[Mr. Bremer submitted the following:]
Prepared Statement of Howard W. Bremer
• The Bayh-Dole Act was a recognition by Congress of the shortcomings of exist-
ing government patent policies.
• It was a recognition that placing the stewardship of the results of basic research
in the hands of the universities and small business is in the public interest.
• It was a recognition that the inventor is a significant factor in the technology
• The assurance of certainty of title in the universities in inventions made with
Federal funds under Bayh-Dole and uniform government- wide implementing
regulations were key in providing impetus to new and expanding university-in-
• Bayh-Dole has promoted both private sector and government investments in
• The universities have been singularly successful in transferring technology
under Bayh-Dole to the benefit of the public.
• Bayh-Dole has promoted job growth at least in part because of its focus on the
small business sector.
• Bayh-Dole, in balancing the interests of both the academic and commercial sec-
tors, has fostered university-industry relationships that have strengthened U.S.
• The principles upon which the Bayh-Dole Act was based and its terms and pro-
visions as well as its implementing regulations are as timely today and for the
future as when the Act was passed in 1980.
Mr. Chairman and Members of the Subcommittee: The organizations for which I
speak today and I, personally, appreciate the opportunity to present our collective
views and experience on the success of technology transfer under the Bayh-Dole Act
The Association of University Technology Managers (AUTM) is a professional as-
sociation of individuals, primarily from universities, teaching hospitals and other
non-profit research entities including patent management organizations, who are
engaged in or connected with the transfer of technology generated during the course
of research conducted at and by such entities to the marketplace. AUTM currently
has over 1,100 members which represent in the membership over 300 such entities.
The Council on Governmental Relations (COGR) counts among its membership
137 of the leading research universities in the United States which, as a group, are
the recipients of over 90 percent of the funds made available to higher education
institutions through contracts and grants for scientific activities.
AUTM and COGR consider the Bayh/Dole Act to be a landmark piece of legisla-
tion, the principles of which and the Act itself being sound public policy in 1981
when the Act became effective. AUTM and COGR also consider that the amend-
ments to Bayh-Dole made by PL 98-620 in 1984 enhanced the effectiveness of the
Bayh-Dole Act as a solid and reliable basis for the transfer of technology generated
in whole or in part from the expenditure of Federal funds and that Bayh-Dole is
still sound public policy for today and the future.
BACKGROUND AND PRINCIPLES OF BAYH-DOLE
Prior to passage of the Bayh-Dole Act, it was the policy of government agencies
to take title to all inventions which were made in whole or part through the expend-
iture of Federal funds. At the outset, one must presume that federal (tax) dollars
are spent in support of research so that the public will ultimately benefit from the
results of that research. The agencies, in embracing the "title" policy toward inven-
tions made with federal funds were singularly unsuccessful in transferring the tech-
nology represented by those inventions to which they held title to the public for its
benefit. The bureaucratic red tape which accompanied any attempt at innovation
was simply too great a disincentive to any company seeking to license directly from
the government. As a consequence, government agencies obtained and held patents
on many inventions but the technology represented by most of those inventions and
patents was never transferred to the public because of the absence of a realistic
technology transfer policy in the government agencies.
The Bayh-Dole Act recognized the shortcomings of the existing government patent
policies and sought to correct them. It represented a recognition by Congress:
1) that imagination and creativity are tnily a national resource;
2) that the patent system is the vehicle which permits the delivery of that re-
source to the public;
3) that placing the stewardship of the results of basic research in the hands of
the universities and small business is in the public interest; and, perhaps
4) that the existing federal patent policy was placing the nation in peril during
a time when innovation was becoming the preferred currency in foreign af-
It was also a recognition that the inventor is a significant factor in the technology
transfer equation. Through the "title" policy the government had no access to the
inventor to provide the necessary bridge from invention to innovation. Without that
bridge, the licensing of university-generated technologies, which tend to be embry-
onic in natiu-e, could not be achieved.
In contrast, Bayh-Dole, by giving the universities the first option to retain title
to inventions, permitted them to make informed decisions about patenting and to
effectively manage the marketing of their patents to industry, all with the help of
the inventor who best understood the technology. Moreover, the natural collabora-
tion between the inventor and his university was enhanced through the incentive
afforded by the university sharing licensing revenues with the inventor — a principle
that is now a requirement under the law.
Probably the single most important aspect of Bayh-Dole was to insure the cer-
tainty of title in the universities to inventions made with government funds. This
feature provided the major impetus to new and expanding university-industry rela-
tionships. The certainty of title and uniform government-wide implementing regula-
tions provide the stability which has been the key element to the success of Bayh-
Dole over the past decade.
Also of great importance to academe is that freedom to publish is not restricted
by Bayh-Dole. While premature publishing will have a significant effect on patent-
ing, not publishing will have a significant effect upon the credibility and strength
of the university research work product. It is in the best interests of society that
the patenting process and the freedom to publish the results of academic research
are recognized as important contributions and that one activity does not proscribe
the other. The university, as the titleholder of inventions and patents on those in-
ventions, is in the best position to ensure that neither patenting nor pubUshing will
-be unnecessarily sacrificed one to the other. One should also keep in mind that
under the disclosure inducement theory, which is the basic principle underlying our
patent system, patenting ensures publication.
Benefits to society
The Bayh-Dole Act has been successfiil because it not only benefits universities,
but industry, especially small business, the government and the public.
University inventions usually stem from basic research and are, therefore, embry-
onic in nature and generally not product oriented. They require an industrial part-
ner to secure the necessary development to bring them to the marketplace. The
Bayh-Dole Act, which allows exclusive as well as non-exclusive licensing, provides
the range of modalities needed by industry for commercialization purposes. Exclu-
sive licenses provide the security industry needs in order to invest risk capital for
further development of promising intellectual property.
In a 1989 survey, which included 76 major American firms in seven manufactur-
ing industries, executives stated that a substantial portion of new products and
processes introduced between 1975 and 1985 depended upon academic research and
development. They explained that these products either could not have been devel-
oped (without substantial delay) in the absence of recent academic research or were
developed with very substantial aid from recent academic research. (NSF: Science
and Engineering Indicators- 1989.) This is testimony to the ongoing cooperation be-
tween universities and industry, which is vital to U.S. international competitiveness
and which government poUcy should continue to nurture.
The drug industry showed the greatest dependence on academic research with 44
percent of its new products and 37 percent of its processes depending upon such re-
search. The information processing industry was also found to rely heavily on aca-
demic research with 28 percent of its products and 27 percent of its processes hav-
ing a dependency on recent academic research. The metals industry also showed a
high degree of dependence on recent academic research with 22 percent of its prod-
ucts and 21 percent of its processes being so dependent. (NSF: Science and Engi-
neering Indicators- 1989.)
Collaboration between universities and small business has increased as a result
of the Bayh-Dole legislation. In testimony before the House Small Business Sub-
committee in June 1993, NIH Director Bernadine Healy presented preliminary data
from a survey of one hundred federally funded U.S. research universities. Of the ap-
proximately 375 research support agreements reviewed by NIH, 44 percent were
with small business. A different set of data confirms the same development trend:
a 1992 GAO study found that of 197 exclusive licenses granted during 1989-90 for
technologies developed in whole or in part with NIH or NSF funding, 146 or 74 per-
cent were granted to small U.S. business. That development trend is exceedingly im-
portant for the country in that it is well recognized that the small business sector
is where the greatest job growth occurs. That further translates into a better pos-
ture for the United States in a competitive global economy.
I, personally, believe that one of the best immediate measures of the impact of
PL 96-517 is the growth of membership in AUTM and its predecessor organization
SUPA (The Society of University Patent Administrators). From less than 100 in
1976, membership has grown to over 1,100 today. However, the numbers alone, al-
though strong evidence of the increasing interest and involvement in the technology
transfer function, do not tell the whole story. In its early years, SUPA annual meet-
ings were considered highly successful if attended by 75-100 people. Today we look
toward attendance in excess of 600. Also, as the opportunities for technology trans-
fer in the university sector evolved under the umbrella of PL 96-517, the length,
diversity and sophistication of the programs increased. Today, it is difficult to ac-
commodate all the varied interests and positions on the learning curve of those at-
tending the meetings. j i-> u
The government investment in university research also flourished under Bayh-
Dole when viewed in terms of inventions generated which could be licensed to in-
dustry. The surge in patent applications and patents issued illustrates a dramatic
success story. The General Accounting Office reported in May 1992 on the perform-
ance of 35 major research universities. Out of 197 exclusive licenses mentioned
aijove, more than 175 were for technologies developed with federal (NIH) funding.
The 1,155 patents granted to U.S. universities in 1990 accounted for 2.4 percent of
all U.S. origin patents. This figure compares to 1 percent in 1980. NSF reports that
in 1970, one in eight university patents originated from a biomedical or health relat-
ed invention. That percentage rose to one in four at the end of the 1980's. Between
1980 and 1990, applications for patents on NIH-supported research increased by
nearly 300 percent over the previous decade.
In 1993, the total number of patents issued to universities numbered 1,670 and
when hospitals and non-profit organizations which qualify for treatment under
Bayh-Dole are added, the total number of patents issued becomes 2,024. It is also
worthy to note that the patents were issued to 134 separate universities and 29 sep-
arate hospitals and non-profit organizations — a grand total of 163 separate entities.
In contrast, in the period from 1969-1975 only 64 of the top 100 research univer-
sities received any patents and for the period from 1986-1990, that number had
risen to 89. These figures are indeed strong evidence of the effect of Bayh-Dole in
expanding the patent base for technology transfer.
The real measure of technology transfer is not, of course, the number of patents
which the university sector obtains or holds, but the amount of the technology rep-
resented by those patents which has been transferred for development for the mar-
ketplace. A recent survey was conducted by AUTM in an effort to provide evidence
that university efforts are indeed responsive to the principles of Bayh-Dole and
achieving the goals it envisioned. The institutions surveyed were requested to pro-
vide the following information:
1) Up to five licensable discoveries or inventions per respondent that are on the
market today and generating sales.
2) The number of start-up companies estabhshed (since 1980) that were depend-
ent upon licensing the institution's technology for initiation even if the start-
ups did not currently have products on the market.
3) Licensing activities as to small and large business.
The response obtained from the 44 institutions which did participate reported:
• 178 products on the mairket which have been licensed to 439 entities.
• Of the licenses granted, 312 are nonexclusive and 127 are exclusive.
• Whether non-exclusive or exclusive about 60 percent have been with small busi-
ness and the remaining percentage with large business.
• The formation of a total of 338 start-ups (since 1980) that were dependent upon
the licensing of the institution's technology for initiation (36 respondents).
• Of the 178 products reported in the survey, 35 new companies were created in
support of the inventions and discoveries.
The cited data which has been presented is, without question, significant when
viewed from an economic perspective. What should not be overlooked, however, is
the inestimable value of products arising from university inventions which have or
exhibit the capability of saving lives or of improving the Hves, safety and health of
the citizens of the United States and around the world.
FEDERAL TECHNOLOGY TRANSFER ACT OF 1986
Often forgotten is the fact that Bayh-Dole is the first piece of legislation that ex-
pUcitly gave the government the right to own patents. Prior to Bayh-Dole, the right
in the government to own patents was an implied right only — a necessary adjunct
to permit various government agencies to carry out their respective missions.
Also, Bayh-Dole provided that in situations where a Federal agency employee was
a co-inventor of a given invention with a university scientist, the government could
assign its rights in and to the invention to the university subject to the terms and
provisions of Bayh-Dole.
Bayh-Dole must also be given credit for focusing congressional interest on mtellec-
tual property-oriented legislation. With that focus established, the next ten years
(after 1980) saw many pieces of such legislation introduced. Some have become law,
most have not. One piece of legislation which could be considered to have been al-
most directly spawned because of or as the result of PL 96-517 is the Federal Tech-
nology Transfer Act of 1986 (FTTA). That act was introduced as an amendment to
the Stevenson-Wydler Act of 1980 which act had been intended to proniote the utiU-
zation of technology generated in government laboratories, but was singularly un-
successful in accomplishing that goal.
The FTTA was largely a response to the increasingly tough international competi-
tion facing the United States and the prevalent complaint that "the U.S. wins Nobel
Prizes while other countries walk off with the market". The designers of the FTTA
built the act under certain fundamental principles:
1) The Federal Government will continue to underwrite the cost of much impor-
tant basic research in scientifically promising areas that takes place in the
2) Transferring this research from the laboratory to the marketplace is primarily
the job of the private sector with which the Federal Government should not
compete. i ^u-
3) The Federal Government can encourage the private sector to undertake this
by judicious reliance on market oriented incentives and protection of propri-
The principles enumerated were first tested by PL 96-517 and the FTTA re-
sponded to the lessons learned from that law, perhaps the most important of which
was its success in promoting university-industry cooperation.
The FTTA is, clearly, a direct highly beneficial legacy of PL 96-517.
It must be remembered that the Bayh-Dole Act (PL 96-517) as well as its imple-
menting regulations were crafted, not in a vacuum, but as the result of experience
gained under the Institutional Patent Agreements (IPA's) in the period froni 1968
onward, the date upon which the then Department of Health, Education and Wel-
fare granted its first IPA, and from 1973 onward under the first IPA granted by
the National Science Foundation. In effect, it means that the principles of Bayh-
Dole have been working and working well since long before the effective date of the
Concerns were expressed in 1980, before Bayh-Dole was passed, and are being ex-
pressed and evaluated again today. Will research agreements stifle the free ex-
change of knowledge, promote secrecy and distort academic priorities to conform
with commercial aims? There was also speculation in 1980 that companies might
exploit taxpayer funded research without providing an adequate return to the pub-
lic In her testimony before Congress in 1993, Dr. Healy put these concerns to rest.
She said: "Fortunately there is little or no evidence that these adverse effects have
materialized. In fact, the risks have been well worth taking: Highly productive um-
versity industry relationships have blossomed since the passage of the Bayh-Dole
Act. These relationships have yielded new products, created high technology jobs
and spawned a robust U.S. biotechnology industry".
Small business is frequently the test bed for embryonic umversity technologies
and has benefited to a very large extent. The government is comforted in knowing
that taxpayer dollars lead to development of products that advance the health and
safety of its citizens. Industry can rely on a source of data, and a pipeline of man-
power that feeds its production processes. All sectors of society enjoy both the pro-
tection and benefits provided by the Bayh-Dole Act. .
Bayh-Dole has been successful in facilitating the transfer of federally funded in-
ventions from the umversity laboratory to the marketplace because it is based on
fair and equitable principles which encourages university participation, balances the
interests of both the academic and commercial sectors and fosters the university-
industry partnerships that are essential to strengthening U.S. competitiveness.
The opportunity to present these experiences and views is sincerely appreciated.
Questions and Answers
NOVEMBER 30, 1993
Council on Governmental Relations
This document, which poses and answers rwenty questions, is
intended to inform the public about technology transfer at U.S.
research universities. The Q&cA has a compendium piece, en-
titled "The Bayh-Dole Act — A Guide to the Law and Imple-
menting Regulations". Although each document fulfills its own
purpose, they complement each other. 'VC'Tien taken together
they present a primer on the subject.
The Council on Governmental Relations is an organization
which includes among its members over 135 research intensive
universities. This booklet docs not claim to be a manual of uni-
versity technology transfer and licensing activities. Rather, it
illustrates the philosophy and processes currently practiced in
the university community.
In preparing the material, the COGR Subcommittee on Tech-
nology Transfer drew on the assistance of many COGR ijniver-
sities. Their help is gratefully acknowledged. Reproduction for
purposes of sale or profit is prohibited without the written con-
sent of the Council on Governmental Relations. Otherwise, re-
production is encouraged.
1. What is the Bayh-Dole Act, what prompted it, and
why is it important to university technology trans-
Enactment of the Bayh-Dole Act (P.L. 96-517), the
"Patent and Trademark Act Amendments of 1980" on
December 12, 1980 created a uniform patent policy
among the many federal agencies that fund research.
Bayh-Dole enables small businesses and nonprofit orga-
nizations, including universities, to retain title to materi-
als and products they invent under federal funding.
Amendments to the Act also created uniform licensing
guidelines and expanded the law's purview to include all
federally-funded contractors. (P.L.98-620)
Critical pressures prompted the Bayh-Dole Act in 1980.
Congress perceived the need for reliable technology trans-
fer mechanisms and for a uniform set of federal rules to
make the process work. One major impetus for the bill was
the lack of a capability on the part of the federal govern-
ment to transfer technologies for which it had assumed
ownership. Hundreds of valuable patents were sitting un-
used on the shelf because the Government, which spon-
sored the research that led to the discovery, lacked the
resources and links with industry needed for development
and marketing of the inventions. Yet the government was
unwilling to grant licenses to the private sector The few
federal agencies that could grant patent title to universities,
were overregulated with conflicting licensing and patent-
ing policies. Technology transfer under those conditions
was operationally prohibitive for universities and made
them reluctant to enter the tcchnolosiv .ircn;i.
Since U.S. industry also was not inclined to brave govern-
ment bureaucracy to license patents from universities or
from the government, limited technology transfer was ac-
complished by the publishing of research results, training
of students for the workforce and some extension programs
established by the land-grant universities. The benefit to
U.S. industry of such an unstructured process is undocu-
mented and highly speculative.
The stability provided by the Act, its amendments and clear
implementing regulations has spurred universities to be-
come involved in transfer of technology from their labora-
tories to the marketplace. The ability to retain title to and
license their inventions has been a healthy incentive for uni-
versities. Such incentive is needed, since participation in
patent and licensing activities is time consuming for fac-
ulty, and must be done in addition to research and teach-
ing priorities. The number of U.S. patents issued to
universities has increased sharply since Bayh Dole was
2. How has the Act influenced university technology
transfer over the last decade and what are the re-
Bayh-Dole gave universities concrol of their inventions.
By placing few restrictions on the universities' Ucens-
ing activities, Congress left the success or failure of patent
licensing up to the institutions themselves. That foresight
has been rewarded by skillful and committed" university
professionals who have shown that licensing embryonic in-
ventions can be successful. The keys are inventors moti-
vated to engage in the process and a licensing relationship
built on partnerships with industry. T-hiS model is now
emulated by the federal laboratories.
The success of Bayh-Dole in expediting the commercial-
ization of federally funded university patents is reflected in
the statistics. Prior to 1981, fewer than 250 patents were
issued to universities per year. Slighdy over a decade later,
almost 1,600 were issued each year. Of those, nearly 80%
stemmed from federally funded research. In addition, the
number of universities participating in the patenting effort
has increased to the point that in 1 992, 200 universities had
at least one patent issued annually.'
Core technologies, likely to spark whole new industries,
often result from university patents. This potential makes
the contributions of the university sector to the national
patent pool so significant. Examples range from the bio-
technology to the laser industry. Stanford's Cohen-Boyer
patent on basic gene splicing tools is at the heart of the
entire biotechnology industry The Axel patents, from Co-
lumbia University, provided a new process for inserting
genes into mammalian cells to make protein. A host ofncw
pharmaceutical products resulted from this invention.
The Atomic Force Microscope, invented at the University
of California, Santa Barbara, is the most advanced atomic
microscope in existence.The invention has not only signifi-
cantly improved our ability to study the structure of mol-
ecules important in biology and medicine; it also helps
scientists comprehend the subtle details of physiological
and chemical processes as they occur in real time.
The field of Magnetic Resonance Imaging, as wc know it
today, has its roots in research at the University of Califor-
nia, San Francisco; This University-developed technology
was first disclosed in the mid 1970s. Later university work
in this area and produaive partnerships with industry have
led to continual advancement in the field. Today, Magnetic
Resonance Imaging is a staple in modern medical care.
University gross licensing revenues of approximately
$200M in 1991 and $250M in 1992,^ are a striking indi-
cator of how many university-owned patents have become
marketplace products or are in the process of development
by industrial companies. Bayh-Dole has enabled laboratory
advances to become a significant faaor in U.S. industrial
' AUTM Survey, compiled annually by Ms. KathleenTcrry, State
University of New York at Buffalo
^ AUTM Uccnsing Survey, 1993.
3. How many research universities have technology
transfer offices and. what do they do?
It is not known exactly how many universities are engaged
in technology transfer activities. One indicator is that
over 230 U.S. universities and nonprofit research institu-
tions are represented in the Association of University Tech-
nology Managers (AUTM). Among those universities that
are active, one can observe a variety of structures and sizes.
More significant than the structure of those offices, how-
ever, is their mission.
The mission of universit}' technology tj-ansfer/licensing
offices is to transfer research results to commercial appli-
cation for public use and benefit. The office seeks and
receives reports of inventions from investigators; reports the
inventions to sponsors; decides whether to elect title for in-
ventions developed with external funding; files patent ap-
plications; markets those patents to industry, and negotiates
and administers license agreements. The technology trans-
fer office is also responsible for oversight of patent prosecu-
tion, recording of income and disbursements, and yearly
reports to the government.
The major effort of the office is to find companies which
have the capability, interest and resources to develop em-
bryonic technologies into useful products. Once a match
is found, a license agreement is negotiated to ensure that
the company will be diligent in its efforts and will provide
a fair financial return to the university — one that reflects a
portion of the university's contribution to the return the
Technology transfer operations are generally also involved
in negotiating material transfer agreements. Under such
agreements, investigators share research materials (cells,
cells lines, reagents, or other organisms) with colleagues m
other universities or industry. Technology transfer experts
also review the intellectual property terms in sponsored
research agreements with industry (in some cases actually
negotiating these agreements in conjunction with the
university's Contracts and Grants office). Importantly, the
professionals in. the office are also a resource to the campus
on a wide variety of intellectual property matters.
4. How does university technology transfer work and
what do universities license?
The major steps in technology transfer are: disclosure
of inventions; record keeping and management;
evaluation and marketing; patent prosecution; negotia-
tion and drafting of license agreements; and management
of active licenses. University technology transfer is mainly
a system of disclosure, patenting, licensing and enforce-
ment of patents and licenses.
The disclosure document contains information about the
invention, the inventors, the funding sources, anticipated
bars to patenting (such as publications), and other data
(such as likely candidates for licensing). The disclosure is
reviewed by the licensing staff or a university committee,
who make a preliminary decision about ownership and the
invention's potential commercial value and patentability.
The technology transfer office takes action to insure that
the newly disclosed intellectual property will be handled
in compliance with federal and university policies.
The next step is to seek an opinion on the patentability of
the invention or to file a patent outright. The technology
transfer office then markets the invention to industry. A
nonconfidential summary is sent to companies that are
likely to be interested. If a company expresses interest, it
will be asked to sign a secrecy agreement (to protect patent
rights) prior to receiving confidential information from the
universit)'. If the company continues to be interested after
reviewing the confidential information, an agreement with
the company is negotiated. This can be a letter of intent;
an option; or a license.
In conjunction with any one of these options, a research
agreement may be negotiated to continue work on the in-
vention at the university. Most universiry inventions arc
embryonic and require further research and development
before they are ready for the market place. Thus, there is a
high level of risk for the licensee — a fact that is taken into
account in the licensing negotiation.
Technology transfer offices have many different "custom-
ers" with sometimes conflicting objectives. For instance,
customers may consist of
a) the faculty — inventors, who often have expectations of
research opportunities, income, public utilization and
b) the private sector, with expectations of securing com-
mercially viable technology at a fair price;
c) the university administration, w^hich expects the office
to be self-supporting and wants to prevent conflicts of
d) the governing board, which needs assurance that the
university's name and reputation are protected in its
e) the taxpayers, with expectations that the office will
manage state and federal resources in an effective and
nondiscriminatory manner; and
the sponsoring agency which insists on compliance with
provisions of the Bayh-Dole Act.
In addition, the technology transfer office has the critical
task of insuring that the missions of the university — edu-
cation, research and service — are not compromised by the
business interest emerging from the technology licensing
5. How is the licensing value (fees/royalties) of tech-
nologies determined, and how is that value pro-
License fees and royalties are determined by arm's length
negotiations between licensor and licensee. Fees and
royalty rates are rarely large because most of the technol-
ogy is in early stages and risky, thus requiring considerable
investment to transform it into a marketable product.
There are, however, a few technologies that have clear com-
mercial applications and have large potential markets. In
such cases, the university can negotiate larger fees and
higher royalty rates. The deciding factors are: the type of
technology, its stage of development, the size of the poten-
tial market, the profit margin for the anticipated product,
the amount of perceived risk, the strength of the patents,
and the projected cost of bringing a product to market.
To place this in perspective, license fees rarely reach into
the six figures for a single patent, but more often range from
a few thousand to a few tens of thousands of dollars. Roy-
alty rates range from less than one percent (for some pro-
cess technologies) to perhaps eight percent (for a patented
compound with a significant market). The majority of
royalty rates are in the 3% to 6% range, based on net sales.
The marketing process itself sets the value of the technol-
ogy — how interested are the prospective licensees. Other
factors that play a role are the estimated dollar value of the
research which led to the discovery; the projected cost of
development needed to complete the product; the scope of
the license (exclusive vs. nonexclusive; US vs. worldwide;
narrow vs. multiple fields of use, etc.) and royalty rates for
beyondsuchgeneralconsiderations, many universities seek
to accomplish several basic goals in development of the
package of considerations: a) the licensee should fund the
patent application either through an up-front fee for reim-
bursement of costs already incurred by the university or
through a requirement to reimbursement of ongoing ex-
penses of the university; b) the license agreement should
include ongoing considerations to the university (a royalty);
c) required minimum annual royalties after a specified pe-
riod of time regardless of actual sales; and d) performance
milestones to assure that the university's technology enters
the market. This "formula" hopefully assures that the tech-
nology is developed to completion and put in the stream of
commerce, assures a fair return to the university, and as-
sures that the technology is returned to the university
should the licensee not pay the minimums or achieve the
specified performance milestones.
6. What factors influence university decisions to li-
cense patents either exclusively or non-exciusively?
University decisions on whether to license a patent only
to one company or to a number of companies are
based on several factors. Howevei, universities are gener-
ally most influenced by two major determinants: (1) what
kind of licensing is most likely to lead to rapid commer-
cialization; and (2) what kind of licensing is in the public
Patents which are broad in scope and c^tn be used in mul-
tiple industries, or patents that are so basic that they form
the building blocks for new technologies are most likely to
be licensed non-exclusively, or by fields of use. An exclu-
sive, "f'cld-of-use" license is a way to protect a market for
a company while enabling the university to identify more
than one licensee to assure public utilization of the tech-
nology in all markets.
Stanford University's Cohen-Boyer patent is an example of
a basic patent that was licensed to all companies needing it.
Non-exclusive licensing is preferred by universities when
the technology can be used to fester product development
in many fields of use. For example, if a technology will be
of greatest benefit to the public if it becomes an industry
standard, the university will make it readily accessible to all
Universities most frequently will grant exclusive licenses to
patents that require significant private investment to reach
the n-.arketplacc or are so embryonic ih.it exclusivity is
neccss.ir\' (o iiulucc liie iiux-simciu needed lo (.IcicriiiiiH'
lUiiiU'. !-rcc]iiciul)', these are new ijriit;s lequirin", iinic-in-
tensr.c and capital-intensive dcvclopnieni oi ihey are tech-
nologies that have only a tenuous link between the
workbench and production. As such, they requite a com-
pany willing to dedicate financial backing and the creativ
itv of its own scientists on a long-range basis.
.^t the final call, the decision to license on an exclusive or
ncn-cxclusive basis is inevitably dtiven by market interest
Not only docs ilie interest relate to 'he value of the mvcn
tion, but also to the investment required to develop new
products and the risk as.sociated with that technology.
7. To whom do universities license and what role does
the start-up company play in technology transfer?
Universities license technology to a broad spectrum of
organizations and individuals, ranging from the large
for-profit corporation to a small non-profit research insti-
tute. For example, a license may be given to a multi-national
pharmaceutical company for a new application of a known
drug because that company may hold the patent on the
compound. A non-exclusive license may be granted to a
number of computer hardware and software firms to in-
crementally improve product lines. A royalty-free license
may be granted to another non-profit research institute to
enable a researcher to practice the invention for research
purposes. Included in these examples must also be a license
to a early stage firm whose founding purpose was to com-
mercialize the technology. While these kinds of licenses are
probably the riskiest in terms of eventual commercializa-
tion and subsequent payoff, those licensee companies are
sometimes the most efi^ective at transferring the technol-
ogy for the public good.
Universities search for the licensee most capable of com-
mercializing the technology. Examples of criteria used in
identifying the licensee are: financial and technological
resources; "fit" within the company business plans; previ-
ous experience, and marketing capabilities. Desire of the
licensee to commercialize the technolog)' and the relation-
ship of the inventor to the licensee are also miportant. Com-
mercialization of technology is not dependent only on
intellectual property rights such as patenis, bm also on the
ideas and know-how of the inventor. Ihcrctorc, the ability
of the inventor to relate to the licensee is often .1 key factor
in a license transaction.
When an entrepreneurial inventor is involved, the licensee
may be a early stage company formed around the technol-
ogy. These entrepreneurial ventures may bring with them
a myriad of potential conflict of interest issues which must
be resolved before a license is consummated. Nevertheless,
they often are the most desirable because they have several
of the key licensing components: desire by the licensee to
make the product/technology a success, and involvement
by the inventor in assuring success. One other factor in li-
censing to early stage companies is that these companies
make that technology their business, whereas in established
companies the technology must compete for resources with
other development projects.
8. Why is it not feasible to select licensees through a
competitive bidding process?
Most university-developed technology is "sold"
rather than "bought". This means that considerable
investment is required to present, persuade, and tailor spe-
cific arrangements to the needs of the licensee. Usually, the
task is to find at least one capable and interested company,
rather than choosing among several candidates. It is gener-
ally impossible to bring the interest of several prospects to
a head at the same time, as would be required for a mean-
ingful competitive bidding process. Also, tailoring to spe-
cial industry needs makes the competitive bidding useless.
Yet, such tailoring is especially necessary in the case of small
business firms to which universities are required to give
preference for technology developed with federal funding.
Additionally, many universities are unable to afford the full
expense of the patent application process. They therefore
seek prospective licensees to cover such patenting expenses
as part of a license agreement. The confidentiality required
to prevent loss of rights in pre-filing negotiations makes
competitive bidding difficult, especially when loss of patent
rights through publication is imminent.
Normally universities contact several prospective licensees
and pursue the most promising ones. Should there be more
than one, universities will decide in favor of the one best
able and diligent to develop the technolog)', not necessar-
ily the one who will pay the most.NX^ere time and circimi-
stances permit, universities may showcase technology
available for licensing, through publications, databases, and
technology shows. More satisfactory results probably would
not be achieved through a formal competitive bidding pro-
cess. Because of the extra time and effort required in bid-
ding, together with the inevitable reduction in flexibility,
the result almost certainly would be fewer licenses and thus
fewer university technologies being productively commer-
9. Why do universities sometimes license to foreign
companies, and to what extent have federally-as-
sisted technologies been licensed to foreign com-
panies on an exclusive basis?
When universities seek potential licensees, they begin
close to home — with companies within the same
state or region. This makes sense because the company of-
ten needs to have access to the inventor as a consultant to
assist in the development process. Such interaction is easier
if distant travel is not required. Universities consider li-
censes to foreign companies in those instances where all
attempts to identify a domestic licensee 4iave failed. If a
thorough investigation of all possible licensees in the United
States results in failure, should the university seek foreign
licensees or close the file? There are many foreign compa-
nies which are leaders in their fields and thus, also, are
potential licensees. In some cases, such as in equipment for
the paper drying industry, the only prospective licensees
may be foreign companies. Many of what appear to be local
and U.S. based companies are, in fact, "foreign"; they may
have been purchased by a foreign corporation (as is the case
with Genentech) or they may be a U.S. based subsidiary
(as is the case with Miles, Inc.). The fact is that many com-
panies are multi-national and have U.S. offices and facto-
The choice of licensee is best made on the basis of whether
a company has the capabilit)' and resources to develop the
technology and to bring it to market effectively. Since uni-
versity technology is not a fully developed product, it is less
.T question ofchoosing among various qualified companies
than findinganycompany willing and able to take a license.
1 hus if a foreign company makes a reasonable proposal and
IS capable of developing and marketing products based on
the invention, the univcrsit}' will generally grant that com-
pany a license.
Nevertheless, universities should be extremely cautious in
considering foreign licensees, especially if the research was
funded by the U.S. government. For those inventions, all
exclusive licenses require the licensee, including foreign
companies, to manufacture products substantially in the
The recent GAO survey of thirty-five top NIH and NSF
grantees showed that during 1 989 and 1 990, only eighteen
of the one hundred ninety-seven exclusive licenses for
NIH/NSF-Rinded inventions went to foreign companies
(less than 10%). An additional eleven were granted to U.S.
subsidiaries of foreign corporations.'
' "University Research-Controlling Inappropriate Access to Fed-
erally Funded Research Results", May 1992.
1 0. what is the relationship between patents and pub-
n order to obtain a patent, the inventor must fully dis-
close his/her invention.Thus, in some ways the act of pat-
enting insures publication. At the same time, publication
of the derails of an invention prior to filing a patent appli-
cation, can result in the loss of patent rights in most coun-
tries. The U.S. is an exception since it permits an inventor
to obtain a patent if a patent application is filed within one
year of the date of publication which first disclosed the
Some scientists are concerned that the desire to obtain pro-
tection may cause publication to be delayed for long peri-
ods, slowing the exchange of scientific information and
thus scientific progress. While this may be true in industry,
it does not appear to occur in academia where publication
delays for patent purposes are rare. When they do occur, it
is usually for less than three months. In fact, if a faculty
member starts the patent filing process at the same time as
submitting a manuscript for publication, it is likely that the
patent application will be filed (in three months) long be-
fore the manuscript is published (in six months).
For university scientists, the right of unfettered publication
of data — in journals, other written media, through oral pre-
sentation at public meetings — is a basic principle of aca-
demic life. Patents protect this form of public discourse in
science. It is not a matter of having to chose between
patents and publications; both are feasible and frequently
desirable. But if there is a choice, it is the faculty who makes
11. Why is it not desirable to dedicate all federally-
assisted inventions to the public via publication,
rather than patenting some of them?
An argument has been made that inventions resulting
from federally funded research should be dedicated to
the public, by publishing the details of the invention in lit-
erature available to the public. The thought is that since
taxpayers paid for the invention they should have free ac-
cess to it. In reality, taxpayers could only reap benefit of the
invention if they had large financial resources, sophisticated
technical skills and the personal interest in practicing the
invention. Further, this scenario would require inventions
that are ready to go to production stage. In today's com-
plex technological environment, federally funded research
is rarely ready to go into production when universities are
ready to license it. Such development is often time consum-
ing and costly.
Taxpayers do benefit from inventions by having access to a
broad range of products developed by a predominantly
competitive marketplace. New drugs are a prime example.
If the invention has been dedicated to the public through
publication, no commercial firm would devote extensive
resources to developing the first commercial application,
knowing that any oftheir competitors can step in and reap
the profits of commercial exploitation once the invention
has been proven. Patents, and the seventeen year exclusive
position they provide to the inventor, or to the inventor's
designee, are necessary for successful commercial develop-
ment of inventions.
12. What ptJtential financial conflicts of interest could
arise at universities in the technology transfer pro-
cess, and what steps have universities taken to deal
Universities are concerned about four primary issues in
a conflict of interest between the academic research-
ers' duties to the university and their involvement with
industry in technology transfer.
1. Conflicts of time and commitment — an over-involve-
ment of the investigator with the company to the detriment
of teaching and university research obligations. Most uni-
versities have regulations regarding the faculty member's
time obligations to the university. For example, some uni-
versities state that the "academic year salary" covers 80% of
the faculty member's time during the nine months of the
academic year. Faculty are free to consult "up to 20% of
the time" (usually understood to be one day per week)
during the academic year. Payment for the "summer
months" is often under a separate, negotiated arrangement.
The issue is further controlled by regular reporting of the
investigator's consulting and other outside commitments.
2. Misuse of university resources on the company's be-
half — this includes university facilities, equipment, sup-
plies and involvement of graduate students and other paid
researchers. University policies should make it clear that
work done at the university must be publishable in the open
literature and that any intellectual property such as data,
patents and software, developed with university resources
belongs to the university. In addition, periodic reports to
research sponsors assure that grant money is used for legiti-
mate research ends. Periodic performance review by aca-
demic administration and an "appeal path" for employees
further controls the process.
3. Confusion in ownership of intellectual propcrt}' — The
question: "Who owns Professor X's patent?" could become
a common source of dispute, unless there are clear univer-
sity policies and definitions within research agreements of
the sponsor's rights. University policies commonly state that
the university owns all patents and software developed us-
ing university facilities or developed under a sponsored
research agreement. Industrial sponsors are commonly
granted first options to license patents arising from the
research, and the federal government is granted a
nonexclusive license to patents from federally funded re-
4. There may be potential or perceived conflict of inter-
est where an inventor holds an equity position in a com-
pany, which the university has licensed to market and
distribute the invention. Most universities believe that
bringing such financial holdings into the sunlight, through
public disclosure, is preferable to a hard and fast rule pro-
hibiting the taking of equity altogether.
Universities also understand that potential unethical con-
duct may arise from an investigators financial interest in a
company. Universities have separate rules in place to pre-
vent, discover or sanction fraudulent activities. Scientific
misconduct, however, is not to be equated or confused with
conflicts of interest.
1 3. Why is there sometimes joint federal and industrial
participation in university research projects?
Increasingly, the federal government encourages the de-
velopment of collaborative relationships between itself,
industry, and academia. New partnerships are fostered
through the Defense Reinvestment Act, programs at the
National Institutes of Standards andTechnology, the Envi-
ronmental Protection Agency and the Department of En-
ergy. Collaborative relationships are expected to promote
economic development, job creation, technology transfer
Federally funded projects can indeed benefit from the prac-
tical industrial perspective. The research can be enhanced
by industry's interest in the application of the research to
solving practical problems and creating new or better prod-
ucts. Industry scientists have substantial expertise in many
federally funded research areas. Thus, collaboration be-
tween research at the university and development at the
company facilitates the transfer of new technologies to
the commercial sector. The resulting leveraging of funds
and expertise benefits all parties and the public.
In certain programs, federal agencies require applicants to
present a technology transfer plan as part of their funding
proposal. In these cases, universities seek potential licens-
ees while the research is in progress. Gaining company par-
ticipation at that early stage increases the likelihood that
the company will grasp the commercial potential of the
research and will help move mventions to the marketplace.
Universities increasingly try to foster ties ^^•nh industry. This
can be a win-win situation: industry extends the scope of
its R&D, and universir)' investigators extend their limited
research dollars and gain access to the expertise of indus-
trial scientists. Bringing industry interests into universir\'
projects also contributes to placement of university' gradu-
ates in industrial settings where their education and train-
ing is effectively used.
Some state governments are also promoting industry-uni-
versity ties. For instance, the Texas Higher Education Co-
ordinating Board makes biannual awards of approximately
$60 million to researchers at state universities in the Ad-
vanced Technology Program. Receipt of state funds under
this program is contingent upon industry participation in
the research project.
14. Do universities apply different policies and proce-
dures to inventions assisted by industry funds than
to those assisted by federal funds?
Universities generally apply the same policies and pro-
cedures to all inventions made at the institution,
whether they result from federal or industrial funding. Of
course, the university must comply v^rith certain govern-
ment reporting and licensing requirements of the Bayh-
Dole Act for inventions resulting from federally funded
research. Nonetheless, university policies emphasize the
university's responsibility to manage /z// its inventions for
the public benefit.
When an invention results from industrially funded re-
search, the sponsoring company is often granted the first
opportunity to obtain a license to commercialize the inven-
tion. If joint industrial and federal funding is involved, the
company's rights are subject to the institution's obligations
to the federal government. Whether or not federal funds
are involved, the university insists on license terms that
require the company to be diligent in developing the in-
vention. If the company does not comply, the university
generally reserves the right to terminate the license or to
grant liceivses to other companies. In this way, a company
can be prevented from "shelving" an invention that might
replace or compete with one of its existing products.
15. When is it appropriate for license rights to future
federally assisted inventions to be committed to an
When both federal and industrial funding support a
research program, it is appropriate to grant an in-
dustrial sponsor the right to receive licenses to subsequent
inventions. The regulations implementing the Bayh-Dole
Act specifically recognize this possibility. It is also possible
for r^vo separate research projects to contribute to a single
invention. If one project is sponsored by industry and one
by the federal government, the industrial sponsor can be
given rights to the invention.
It is, however, considered inappropriate to grant an indus-
trial sponsor the right to exclusive licenses to future feder-
ally assisted inventions which result from research that the
company does not fund.
Perhaps the most fundamental boundary is that univer-
sities should not gram to a single industrial sponsor the
rights to federally assisted inventions from the entire in-
stitution or major units such as departments, centers and
laboratories. The granting of rights must be specific to the
scope of work funded.
University action in the management of inventions is
guided in part by their mission: instruction, research, and
public service. It is within this mission that universities
undertake federally assisted research. The administration
of invention rights arising in this research is further
bounded by the implementing regulations of the Bayh-
Dole Act. For example, the Act specifies that manufacture
of products based on the technology should be done sub-
stantially in the United States. This is good public policy,
but it also makes good business sense. Companies often
express a concern about the government's march-in rights
under the Act. These rights, again, are appropriate public
policy and would likely be applied only when a company's
pricing is abusive — a condition which the marketplace is
more likely to correct first.
It is within this framework of principles, institutional mis-
sion and federal regulations that universities determine
what rights to grant to industrial sponsors.
16. How much income is derived by universities from
licensing federally assisted inventions, and how is
that money used?
The 1992 GAO survey of thirty-five top NIH and NSF
grantees showed that for the two-year period 1 989 and
1990, those universities received a total of $113M from
licensing of which $82M was for licenses of NIH/NSF
funded inventions. To place these figures in context, the
invention income was less than 1% of the research sup-
port provided to universities by NIH and NSF.
The Association of University Technology Managers
(AUTM) gathered 1991-1992 data from U.S. and Cana-
dian institutions engaged in technology transfer. 98 U.S.
universities provided gross figures on their royalty/ income.
For 1992, royalties amounted to $172M. This figure needs
to be adjusted for legal fees, amounting to $37M. In addi-
tion, the survey does not translate into dollar terms the
amount of staff time expended to manage the process. Such
figures tend to be meaningless in the abstract, lacking the
context of institutional, federal and industry funding which
provided the basis for the invention disclosures.
In reality, licensing income is small in comparison to the
total university budget or even in comparison to the
university's sponsored research budget. Even at the schools
with the most licensing income those percentages rarely
exceed 3-5%, and at most schools the percentage is less
How do universities use royalty income? 1 he answer is the
same at all U.S. universities — income from licenses flows
back into research or teaching. According to federal law, the
universities must share licensing income from federally
funded inventions with the inventors. The balance of in-
come can be used to cover the costs of the tcchnolog)' trans-
fer program and to support teaching and research at the
university. While the specific percentages vary from insti-
tution to institution, the typical royalty sharing policy pro-
vides, after expenses, about Vs of net income to the inventor
V3 to the inventor's department, and the university's gen-
eral research fund receives the final '/3.
1 7. How do universities measure success in technology
There are many ways to measure success in technology
transfer, but since this is a new field, success indicators
are not yet uniformly established. Various measures in-
clude: the number of inventions disclosed; the number of
patent applications filed, patents issued, and licenses con-
summated; the amount of licensing income, and the num-
ber of commercial products produced and sold. Some
institutions track the number of industrial interactions and
research projects funded as a direct result of marketing ini-
tiatives. Others point to spin-off industries and related
incubation facilities, which tend to grow next to highly
innovative universities. Silicon Valley and Route 128 are
well known examples.
More intangible, but nonetheless significant indicators
include: a university's capability to retain entrepreneurial
faculty and attract outstanding graduate students; irs repu-
tation for innovation; the enhancement of university re-
search; and the promotion of the university's name. And
the marketplace impact of university originated products
and technology is unquestionably a major component of
Marketplace products are recognized by the public as a
tangible outgrowth of its support of basic research. An ex-
ample of the impact of university technology transfer on
the marketplace is found in the biotechnology industry.
This entire industry — and ten thousands of new jobs it
created — is based upon univcrsit)' research. The Cohcn-
Boyer patent licensed by Stanford University is used hv .ill
biotechnology companies. In addition, many of the.se com-
panies were founded to develop universit)' inventions,
whether related to specific genes, monoclonal antibodies
or potential drugs.
91-388 - 95 - 3
18. Why' do luiiversities retain title to inventions?
J I niversirie.v ^lC liniquc environments. They are the r.u-
\wV n.ubtive prosiuci of decades of social invcirment.
Their land and pliysicit! plant may have been granted or
gifted by state governments or individuals. The.r tremen-
dous value to the public h exemplified by the fact th?.t they
are rradinonall> tax-exempt. Their activities are supported
by 3 mix ofsrate, federal and private investment. The pacc
berv.eer» universities and the public demands accouiuabii-
ic)' i'ii use of resour. OS which have been piovided at public
expense, and imposes an obligation upon universities lo
ensure that the public receives benefit for its investment.
This \< one factor in some universities' reluctance to sell
pateni title to industry. Othei factors also play a role:
■ The value of the American research university is in the
reservoir rif its scientific experience and the accomplish-
ments of its faculty and students Ensuring continued
use of u nique discoveries within the classroom and labo-
ratory is indispensable to maintaining the qualirv ol the
research university By maintaining control of their
patents, universities allow both commercial use plus
contributions to the universities' collective intellectual
■ Bv nature the u niversity is a dynamic environment with
f;iculr/ and students freely interacting with one another.
Cross- fer> iiization of ideas may result in multiple mveii-
lions wi;l! obligations to different funding sources. Ry
retMPingutleio patents, universities are in a position to
equiiahly apportion the tight to use patents among ilv
a Til." link between techriolcg>' crei-.tor and produc dc-
\ clone; i- rruriHl tor siiccessful conunciciaiization ! he
"roduct dcv,->loper .noit often does nor have the knowl-
edge to work with the basic inventions that result frotii
university reseaich. By retaining patent title and iicens-
inc those patents to industry, universities establish a
partnering relationship that allows ongoing intcractioii
between the source of the idea and those with the ex-
pertise :o bring it to the marketplace
B'. refaiijing titLe to patents, universities can .equiie lic-
ensees to make diligent efforts toward commercializing
those patents. Patents not used must be surrendered to
the university so that an alternative licensee may be
round. Universities can ensure that new product oppor-
tunities are not wasted by companies without the re-
sources, resolve or capability to achieve commercializa-
Incentive to invent is as important lo the university
scientist as it is to the industrial scientist. A technology
transfer program structured around royalrv-bcaring li-
censes, lather than patent title assignment, helps moti-
vate university scientists to pursue break-through
19. Why are universities a vital link in the chain from
creation of knowledge to development of products?
The valuable results of research which provide advances
in technology are usually the result of the curiosity of a
researcher who is asking "Why is this so?" or "Where could
that lead?" What makes universities unique is the fact that
they provide a rich diversity bringing together multiple
disciplines, with a broader focus than product-specific in-
dustries. Most importantly, universities train and nurture
the next generation of scientists and engineers which will
carry with them to industr)' the ability to link creative
knowledge with product development. The university pro-
vides the environment — library, laboratory, resources,
equally curious colleagues and students — to nurture the
pursuit of knowledge.
However, this knowledge often needs further work even
to begin to determine its usefulness as a contribution to
a product or service. Industry is reluctant to support re-
search which is not directed toward immediate financial
return. The university provides a proving ground on
which to take next steps toward commercialization.
The majority of university research is sponsored by govern-
ment agencies and is not targeted to specific commercial
markets or end products — it is, by definition, basic re-
search. However, since it is the nature of research to iden-
tify' and test new ideas, its results often lead to the expansion
of scientific knowledge as well as to the development of new
technologies and products which benefit the public.
20. Why is it important to encourage university inven-
tors to participate in the patenting process and how
are they motivated?
[ nivcrsicies make a considerable investment each time
they decide to patent an invention. Their resources
include the faculty inventor's time and eneig)-, and the
ouday of dollars required by the patent applica'ion process.
Commitment and support from the faculty is essential fot
successful technology transfer activities by their institution.
Beyond the actual patenting stage, however, the path from
ail invention to final product or service in the marketplace
is usually long and expensive. During this"s'age, the sci-
entific knowledge of tlie inventor needs to feed into the
process, to assure smooth and continued progress.
In addition to royalr)' income, faculty recognii.on by peers
is important. In some schools the preparation ui material
to obtain a patent and the successful completion is given
weight in the tenure and promotion process. This invest-
ment in time and money will not be .made wir'nout incen-
tives. In fact, the Bayh-Dole Act deliberately grants those
incentives, to the inventor and the universities Beyond the
gratification of bringing technology to public use, the in-
stitution needs to recover its investment. The inventor
hopes to generate research funding in the short term and
possibly receive license fees to use for future research sup-
port. It is important to recognize that without such incen-
tives, many inventions may not get earned through the
necessary steps and a commercial opportuniP.' will b
wasted. This wasting of ideas is a dram on the ctoiiomy,
irrespective of whether it was public or priv.itc tunding
which led to the initial invention.
Many facuir)' researchers were not exposed to the idci of
intellectual propert)', patents, copyrights, trademarks, cil.,
during their early academic careers. They m.iv have mis
conceptions and apprehension about the patenting po iress
One common misconception is that the public benefits
only when research is rapidly published and provided
equally to all inrerested parties. Another is that patent:,
should be obtained only n;/ industiia! researcheis.
Many universities provide outreach progiam.-. to potential
university inventors to dispel these misconcej>iions and to
allow inventors and their laboratories to benefit fiom theii
ideas. Encouraging faculry to participate in the process ot
patenting may increase their understanding of the benefits
of protecting the valuable technology. Involving inventors
in the process of marketing the technology is helpful in
broadening their outside interests. In this manner, the in-
ventor gains an insight into new potential sources of re-
search funding as well as the benefits of commercialization.
Not all faculty will agree that their involvement in com-
mercialization activities is appropriate. Some contend that
commercialization taints the university and detracts from
its mission. They believe that technology transfer should
be accomplished through more traditional methods, such
as the education and training of students and the broadest
dissemination of knowledge through publications.
Change is inevitable and change will be effected by success
of the commercialization efforts. Yet, participation in such
activities should always remain an option, and should re-
main consistent and focused on the mission of academia.
Keynote Address Texas Technology Transfer Association
TEN years after PL 96-517
Unlike Botticelli's famous painting "the birth of venus", where venus arises full
blown from a seashell, PL 96-517 enjoyed no such instantaneous and spectacular
birth. Rather that law was the culmination of a long, slow, frustrating and tedious
While, I am sure, most of you are familiar with PL 96-517 since it was the pri-
mary key which unlocked today's extensive technology transfer efforts in the univer-
sity sector, I am just as sure that most of you are unfamiliar with its creation. In
keeping with the caption which appears on the front of the national archives in
The heritage of the past is the seed that brings forth the harvest of the fu-
It seems appropriate to give you an historical perspective of PL 96-517, its origin,
its function, and its growth, through both voluntary acts and legislation. With that
as a prologue to a current perspective of the law and its impact, you will be able
to more fully appreciate what a truly seminal piece of legislation that law was.
Please keep in mind that when I speak of technology transfer today, I am not
speaking of the informational transfer that occurs through publications in scientific
or other journals or through consulting or equivalent relationships that are the
norm in the university sector. Rather, I am speaking of the transfer of a property
right, usually through a licensing arrangement.
The concept that "intellectual property" — the products of the mind — had a value
as property arose during the framing of the U.S. Constitution. It grew out of exten-
sive thought and correspondence between James Madison, the primary architect of
the constitution, and Thomas Jefferson. It was considered by Madison important
enough to be treated separately in the constitution and not merely included in with
general property right provision. The technology transfer function is, of course,
based upon the recognition of and the specific provision for that very special prop-
NATURE OF UNIVERSITY RESEARCH
During the prevalence of the "ivory tower" concept of universities and the re-
search that was carried out in them, little though or impetus was given to the trans-
fer of the results of that research to the public other than through the accepted and
acceptable route of scientific publication. In fact, under that "ivory tower" concept,
a researcher who accepted a corporate subsidy aroused the suspicion among his col-
leagues that he had been diverted from his basic research and had become a tool
of vested interests. He had accepted "tainted money".
When, in 1924, it was suggested at the University of Wisconsin that a plan be
developed to make use of patentable inventions generated by faculty members which
1) Protect the individual taking out the patent;
2) insure proper use of the patent; and, at the same time;
3) bring financial help to the university to further its research effort.
The purists quickly applied the "tainted money" theory to the plan. It was feared
that any such arrangement would divert the scientist from basic research to work
only on those ideas which appeared to have commercial potential. In other words,
the research function would no longer be driven by the seeking of new knowledge
but by the dollar-driven need to solve current problems in the real world, even to
the development of products and processes to market-ready condition.
The fears propounded by the purists then, and which are still embraced among
academia by some, did not materialize. There was no great rush toward patenting.
There was no evident movement among university researchers toward applied re-
search tied directly to actual product development. Nor was there any observable
change in the research scientists' attitude. In fact, university research then, even
as now, remained essentially basic in character.
The generation of inventions is almost never the main objective of basic research.
If inventions do flow from that research activity, it is a largely fortuitous happening
that takes place because the researcher, or, perhaps, an associate, has the ability
to see some special relationship between his scholarly work product and the public
need. It is from the recognition of this connection, which can convert a discovery
or invention into "patentable invention, that innovation arises.
A short 15 to 20 years ago the term "intellectual property", if it was known at
all, would have been viewed in academe as alien and, if known, unwelcome. How-
ever, at that time, and even much earlier, a number of universities were engaged
in patenting and licensing intellectual property generated on their respective cam-
puses with the attendant opportunity to generate funds to aid in supporting the re-
search function. Prominent among such institutions were the University of Califor-
nia, Iowa State University, Battelle Development Corporation, research corporation,
which represented a number of universities and the University of Wisconsin through
its patent management organization the Wisconsin Alumni Research Foundation.
THE GOVERNMENT VECTOR
During the early history of the United States, very Uttle technical development
work was done by the Government and, therefore, as a practical matter, the ques-
tion of the Government owning a patent never arose. Gradually, federal agencies
began to undertake the practical kind of development work which led to inventions.
Since, prior to World War II, almost all government-financed research and develop-
ment work was conducted in federal laboratories by full-time government employ-
ees, there was a small, but recurring, problem of what to do with inventions result-
ing from such work-inventions which, if made by private parties, would have become
the subject of patent applications.
This situation changed rapidly during and after World War II when the techno-
logical burdens imposed by more and more sophisticated military requirements, as
well as the increasing complexity of support services, made it quickly evident that
there were not sufficient resources within the Government itself to undertake all the
scientific projects necessary to a winning war effort. The absolute necessity to utilize
the best technical ability available, regardless of its locus, spawned a rapid pro-
liferation of government-sponsored-and-funded research and development.
The proper disposition of rights to patents resulting from this work was theoreti-
cally as important then as now but was never seriously addressed as a major prob-
lem because of the exigencies of wartime needs.
Post World War II, the rapid technological strides made under the impetus of a
wartime footing and the obvious necessity for continuing technological superiority,
at least in defense-oriented efforts, made it imperative for the government to con-
tinue to provide support for science. Nor was that support limited to military-ori-
ented effort. For example, in 1950 Congress finally approved an annual budget of
$15 million for the National Science Foundation to conduct basic scientific research
During the same period, hundreds of milHons of dollars were appropriated by the
Government for medical research as the beginning of an all-out attack on disease.
With the rapid expansion of scientific projects being undertaken and supported by
the Government, the same shortage of technical ability and facilities prevalent
under the pressures of World War II was again in evidence. Since, again, the Gov-
ernment could not, in its own facilities, do all the necessary work, it sought out
qualified private companies, universities and non-profit organizations to perform
much of the research and development under contractual arrangements. In such ar-
rangements the same old problem of ownership of rights in intellectual property was
present but was seldom, if ever, directly addressed. In the case of universities and
non-profit organizations, few were engaged in patenting the result of research and
in technology transfer activities. Since the money from the Government was readily
available and flowing freely, the prevailing attitude was to "take the money and
The Government itself had not developed any single or overriding pohcy regarding
the disposition of the rights in intellectual property. As a consequence, each govern-
mental agency which supported a research and/or development effort, through either
or both of contractual or grant arrangements, developed its own policy. The ultimate
result was that prior to the passage of PL 96-517 some 26 different agency policies
were in place. Often, because of co-mingled funds in many university research
projects, more than one agency policy had to be considered and the most restrictive
policy always controlled.
GOVERNMENT POLICY — MOVE TOWARDS UNIFORMITY
An effort to effect a more uniform government policy toward inventions and pat-
ents on a government wide basis, was made in 1963 by Jerome Weisner, President
Kennedy's Science Advisor. This effort was followed in 1971 by the issuance of a re-
vised statement of government patent policy by President Nixon. The fundamental
thrust of that statement was:
A single presumption of ownership of patent rights to government-spon-
sored inventions either in the Government or its contractors is not a satis-
factory basis for government patent policy and, that a flexible, government-
wide policy best serves the public interest.
Then, during the period from 1963 to 1971, while experience with the Weisner-
Kennedy effort was being gained, further efforts were being made to persuade sev-
eral federal agencies, specifically, the Department of Health, Education and Welfare
and the National Science Foundation, to enter into institutional patent agreements
(the I.P.A.). The policies of both of these agencies permitted a waiver of rights to
the inventions made with their funds. However, on the very few occasions where
such a waiver was granted (referred to as an 8.2(b) grant of greater rights) it was
so fraught with restrictive provisions that it presented an unworkable basis for
transferring technology to the private sector. No commercial firm was willing, under
the conditions imposed under the waiver, to risk the expenditure of the necessary
Subsequently, after five years of effort the then Department of Health, Education
and Welfare, in 1968, issued its first new Institutional Patent Agreement (IPA) to
the University of Wisconsin. This was followed in 1973, after another five years of
effort, by an institutional patent agreement between the National Science Founda-
tion and the University of Wisconsin — the first ever of such agreements with that
That evidence of not only the availability of an IPA, but that those two agencies
would actually grant them, appeared to provide some impetus to universities to en-
gage in the technology transfer business, nevertheless, some of the provisions of the
IPA's available from those two agencies were unacceptable under some universities'
policies, while many other governmental agencies still clung tenaciously to the pol-
icy of taking title to all inventions made with funds they had supplied.
Although limited to two agencies, the IPA's were not only important as manifest-
ing a change in the attitude of those agencies but more importantly as establishing,
through negotiation, terms and provisions which were carried into and set the tone
for the legislative effort which culminated in the passage of PL 96-517, the patent
and trademark law amendments act, in 1980. In fact, that law is often looked upon
as a codification of the terms and provisions of the IPA's.
Finally, there it was, the reward for almost 20 years of effort, PL 96-517, the law
that changed the presumption of title to any invention made by small businesses,
universities and other non-profit entities through the use of government funds, in
whole or in part, from the Government to the contractor-grantee. Another factor,
often overlooked, is that the law did away with the distinction which the agencies
had always made between grants and contracts when dealing with universities, a
distinction which a number of agencies rigorously applied in their zeal to retain
rights to intellectual property under research contracts.
The passage of the law was not, however, the end of the battle. It took over a
year to settle the controversy which arose over the writing of the regulations under
the law. During the course of the legislative effort, an almost adversarial relation-
ship had developed as between the universities on the one hand and the Depart-
ments of Energy and Defense and NASA on the other hand. The nature of that rela-
tionship became very clear whan those agencies combined to write regulations which
actually controverted the law. As a consequence, much greater attention was given
to the regulations by a university group which built into the regulations protection
against both arbitrary exemptions to the law at agency discretion and to the exer-
cise of march-in rights.
Since I was heavily involved in all facets of this historical process, there is a cer-
tain nostalgia in recapping these developments with you. however, the experience
is in keeping with the expression:
Only nostalgia could find anything nice about walking barefoot on a gravel
THE ECONOMIC CLIMATE
To more fully appreciate what has evolved through the sequence of events which
has been enumerated, it must be kept in mind that through this period, the econ-
omy of the country as a whole, as well as the economy of each state, was and still
is in transition. Today, universities operate in an economic climate which:
1) Is knowledged based — not capital based (although, without question, avail-
ability of capital is a necessity);
2) Is entrepreneurially based — witness the large numbers of new companies cre-
ated in recent years;
3) Involves world markets — the international aspect of protection for intellectual
property generated through the research function must be a consideration;
4) Kenects continuous and often radical technology changes;
5) Is becoming more decentralized — making state and local options and initia-
tives more significant;
6) Is an economy of appropriateness not one of scale — i.e., merely increasing the
size of a production plant will not necessarily reduce the cost of product or
increase its quality;
7) Is increasingly competitive on a global scale — witness the advent of the Euro-
pean Economic Community scheduled to come into full effect in 1993.
In view of this continually evolving economic climate, and since new products
arise from new fundamental ideas as well as from new applications of existing tech-
nology, the necessity for supplying adequate support for research is evident. How-
ever, support of research is not enough. That support must be coupled with a cre-
ative technology transfer capability. Invention without innovation has little eco-
With the passage of PL 96-517 and, in the same year, the decision of the Su-
Ereme Court in the chakrabarty case, which stood for the proposition that merely
ecause something was alive (in that case a bacterium) it was not precluded from
being patentable, along with the evolution of genetic engineering concepts, the uni-
versities were literally propelled into an awareness of the potential economic value
of the technology that was being generated by their research programs. That fact
made it self-evident that steps had to be taken to make innovation follow invention
since invention alone holds little hope for generating needed revenues to support an
expanding research effort. Because the Government has been and still is the pri-
mary source of the funds supporting the research effort at universities, the passage
of PL 96-917 permitted the universities to position themselves, through the estab-
lishment or expansion of technology transfer capabilities, to better insure that inno-
vation would follow invention.
In my view, PL 96-517 was a landmark piece of legislation in that, after many
false starts and unsuccessful efforts, it was, finally, a recognition by Congress:
1) That imagination and creativity are truly a national resource;
2) That the patent system is the vehicle which permits us to deliver that re-
source to the public;
3) That placing the stewardship of the results of basic research in the hands of
universities and small business is in the public interest; and, si^ficantly,
4) That the existing federal patent policy was placing the Nation in peril during
a time when innovation was becoming the preferred currency in foreign af-
Because of the salutary experience with PL 96-517, as reported by the comptrol-
ler general, and responsive to continuing efforts by the university sector, a subse-
quent bill was passed by Congress which became PL 98-620. That law removed
many of the restrictions which had been built into PL 96-517 for the purpose of po-
litical expediency and gave the universities a much freer rein in conducting tech-
THE HERITAGE OF PL 96-517
PL 96-517 represented the first cautious step with a new relationship between
the Government, as represented by its agencies, and the universities. It also
presaged a new and closer relationship with industry. The certainty of title in the
universities to inventions made with government funds, which was supplied through
PL 96-517, provided the major impetus to new and expanding university-industry
relationships. Inasmuch as the Government always receives an irrevocable royalty-
free license under any of such inventions, and because of other provisions of PL 96-
517 and the ensuing regulations under that law, the relationship is, in reality, a
One of the immediate positive fall-outs resulting from the passage of PL 96-517
became evident shortly after the bill became law from a comment made by my then
Congressman, Robert Kastenmeier, who was chairman of the Judiciary Subcommit-
tee on Courts, Civil Liberties and the Administration of Justice, a key committee
in the legislative path of PL 96-517. He told me that since now, finally. Congress
had shown an interest in intellectual property legislation he intended to sponsor
and introduce much such new legislation. Time proved him to be as good as his
word. He always lent a sympathetic ear to the university position and sought out
the advice of the university sector on many new pieces of legislation even prior to
IMPACT OF PL 96-517
How can we take the measure of the practical impact of pi 96- 517? Since we are
dealing for the most part with the transfer of technology from a protected base, the
obvious answer is to look for the change in the number of patents which have issued
to universities since the passage of PL 96-517.
In 1990 U.S. universities received 2.4 percent of all U.S. origin patents. That is
up from about 1.0 percent a decade earlier. The changes can readily be seen in fig-
ure 1. Associated with those data are the number of patents awarded to the top 100
academic research performers (figure 2). It is evident that the largest research uni-
versities account for a large and growing share of all academic patents. Among the
top 100 only 64 received any patents during the period from 1969-1975. During the
period from 1986-1990, however, 89 of those institutions obtained patents. Even
more significant is the fact that the number of patents issued to universities has
doubled in the past six years to a total of 1,346 in 1991.
That rapid growth is readily evident from figure 3 which also shows the number
of patents issued to the top 10 universities in terms of numbers of patents obtained.
Those top 10 universities, the number of patents each obtained in 1991 and their
respective R&D spending levels in 1990 is shown in figure 4.
Although the focus is generally on the top performers among universities as meas-
ured by R&D expenditures, it is interesting to note that the top 10 in the number
of patents issued are not necessarily the top 10 in R&D expenditures. It is tempting
to view patents issued on a year-to-year basis as evidence of current activity, par-
ticularly for those who are not familiar with the patenting process, including appli-
cation pendency times. Over the short term that kind of assessment can be very
misleading. Over the longer term, however, for example the 10 year period since the
passage of PL 96-517, it is a more meaningful measure. The lag time involved and
the roller-coaster effect in using year-to-year comparisons in utilizing issued patents
as the measure of activity is evident from figures 1 and 2.
I believe that figure 1 is highly significant in showing the influence of the passage
of PL 96-517. It illustrates that the university sector, in the period from 1981-1985
was gearing-up to either engage in or expand technology transfer efforts and that
the fruits of those efforts became abundantly clear in the large increase in patents
issued to that sector in the 1986-1990 period. That upswing is readily evident from
figure 5 showing patents issued to the 100 institutions with the greatest R&D vol-
In figure 6 I have selectively hsted the numbers of patents awarded to U.S. Uni-
versities by patent and Trademark Office Technology class for the period from 1969-
1990. The selection was made to show the classes in which the greatest activity and
increase in activity was displayed. It can readily be seen that the most active classes
have been in the several subdivisions under the broad class definition of "drug, bio-
affecting and body treating compositions" and "chemistry: molecular biology and
microbiology". The broad class definition "surgery" also indicates high activity. One
can conclude from that life-science orientation of the classes of patents that the re-
sults of genetic engineering research is strongly represented, an area of explosive
growth in academia and the heritage of both PL 96-517 and the chakrabarty deci-
sion mentioned earlier.
A further reason for that life-science orientation is undoubtedly the result ot the
large sums for academic R&D supplied by the National Institutes of Health (NIH)
and the National Science Foundation. Those two agencies supply the bulk of aca-
demic R&D money. The patent and licensing activity associated with NIH and NSF
funds for the fiscal years 1989 and 1990 is shown in figures 6a and 6b.
That is not to say that there was not a continuing effort going forward to increase
and diversify technology transfer activities through that 1986-1990 period and also
today. Most significantly, that continuing effort is evidenced by the fact that of the
top 100 R&D performers in 1980 fifty-five had at least one patent issue but that,
overall, by 1989, 144 different universities had at least one patent issued.
The real measure of technology transfer is not, of course, the number of patents
which the university sector holds, but the amount of the technology represented by
those patents which has been transferred. What then has been the licensing experi-
ence? A recent study of 35 universities by the general accounting office (GAO),
which was directed to "controlling inappropriate access to federal funded research
results" is indicative of the present level of activity among those 35 umversities.
Figure 7 shows the activity for fiscal years 1989 and 1990. Note also, as illustrative
of the expanding diversity of technology transfer efforts and capabilities, that li-
censes granted for software and tangible research properties, included under the col-
umn heading "other", exceed those granted for patents. The $113.1 in license income
shown is substantially greater than the licensing income of about $30 million which
112 leading research universities (including almost all of the 35 surveyed for the
GAO report) reported to the GAO for fiscal 1986. The patent and licensing activities
of the 35 individual universities surveyed is shown in figure 8.
I, personally, believe that one of the best measures of the impact of PL 96-517
is the growth of membership in the Association of University Technology Managers
(AUTM) and its predecessor organization SUPA (The Society of University Patent
Administrators). That growth is shown graphically in figure 9. however, the num-
bers alone, although strong evidence of the increasing interest and involvement in
the technology transfer function, do not tell the whole story. In its early years SUPA
annual meetings were considered highly successful if attended by 75-100 people.
Today we look toward attendance in excess of 600. Also, as the opportunities for
technology transfer in the university sector evolved under the umbrella of PL 96-
517 the length, diversity and sophistication of the programs increased. Today, it is
difficult to accommodate all the varied interests ana positions on the learning curve
of those attending, the meetings.
Why the continuing and growing interest in technology transfer by the university
sector? The primary reason is, of course, that most research at universities is sup-
ported at least in part by federal funds. In fact, today it is difficult to find an inven-
tion that does not involve the expenditure of federal funds. In most cases, therefore,
the terms and provisions of PL 96-517 as modified by PL 98-620 holds sway. The
fundamental premise in the expenditure of those funds is that the public should
benefit from the research it supports. Since, most of the research conducted by the
universities with those funds is basic in nature, inventions which arise tend to be
embryonic and reqmre further development. PL 96-517 has supplied and continues
to supply the mechanism by which that further development can be achieved
through patenting and licensing the private sector. At the same time universities,
under that law, have the incentive to engage in that activity because of the potential
for income for the university. There is, of course, that motivation which comes from
the hope of finding among the invention disclosures which you receive that once-
in-a-decade invention which turns your program into a gold mine — at least for a few
years. It can and has happened but, as I am sure you all know, technology transfer
IS not a get-rich-quick scheme.
Although it is difficult to establish a direct nexus with PL 96-517, I believe that
growth of R&D at universities is, at least in part, attributable to that law. Evidence
in support of the conclusion I have drawn comes from looking at the funding pat-
terns for R&D in academia.
In 1991 an estimated $17.2 billion was spent for R&D at U.S. academic institu-
tions. The character of the work and the performer of that work is shown in figure
10. That level of expenditure represents a continuing trend of an increasing role for
academic performers in total U.S. R&D.
Measured in terms of constant 1982 dollars academic R&D increased an estimated
74.2 percent between 1980 and 1991. Between 1985 and 1991 the academic R&D
growth was much stronger for the academic section (estimated at about 44 percent)
than for any other performing sector. This tends to comport with the large increase
in patents issued to the university sector during that same period as shown in fig-
ure 5 discussed earlier. As a proportion of the Gross National Product (GNP) the
academic share rose significantly over the past decade, from 0.23 to 0.31 percent.
As is evident from figure 10 academic R&D activities are concentrated heavily on
basic research. Very little development is done. That breakdown is more readily
seen in figure 11. Figure 12 shows the R&D expenditures of the top 20 universities
and colleges by source of funds.
What is even more interesting is the sources of the funds used by academia for
its research activities. This is shown in figure 13. as I am sure you all know, and
as is shown by figures 10 and 13, the majority of the funds for academic R&D are
provided by the Federal Government. What may be surprising is that the academic
institutions that performed the R&D provided the second largest source of funds.
From 1971 to 1991 the institutional share grew from 11 percent to about 20 percent.
You may also be surprised that, while industry's share of support has risen from
about 3 percent in 1971 to an estimated 7 percent in 1991, the institution's support
of R&D is almost three times that of industry. Those who hope that as government
funding shrinks industry will pick up the slack are entertaining a forlorn hope in-
deed. The disparity in the amount of funds supplied is much too great. It must also
be kept in mind that industry philosophies and goals are very different from that
of both the Government and universities. I do firmly believe, however, that indus-
try's increased support was, at least in part, the direct result of PL 96-517 since
under that law the certainty of title to inventions in the universities was estab-
You may also find interesting the difference in sources of R&D funds at public
and private institutions since I assume that some of both are represented here
today. Those data appear in figures 14 and 15. The change in support in the decade
after the passage of PL 96-517 for each group is also shown.
FEDERAL TECHNOLOGY TRANSFER ACT OF 1986
What is often overlooked is the fact that PL 96-51 is the first piece of legislation
that specifically gave the Government the right to own patents. Prior to the passage
of that law the right to own patents had been considered as a necessary adjunct
to permit the various government agencies to perform their respective missions —
it was an implied right only. Also, in situations where a federal employee was a co-
inventor of a given invention with a university scientist, the Government could as-
sign its rights in and to the invention to the university subject to the terms and
provisions of PL 96-517.
PL 96-517 is given credit for focusing congressional interest on intellectual prop-
erty — oriented legislation. With that focus established the next ten years saw many
pieces of such legislation introduced. Some have become law, most have not. One
giece of legislation which could be considered to have been almost directly spawned
ecause of or as the result of PL 96-517 is the federal technology transfer act of
1986 (FTTA). That act was introduced as an amendment to the Stevenson-Wydler
act of 1980 which act had been intended to promote the utilization of technology
generated in government laboratories, but was singularly unsuccessful in accom-
phshing that goal.
The FTTA was largely a response to the increasingly tough international competi-
tion facing the United States and the prevalent complaint that "the U.S. wins nobel
prizes while other countries walk off with the market." The designers of the FTTA
built the act under certain fundamental principles:
1) The Federal Government will continue to underwrite the cost of much impor-
tant basic research in scientifically promising areas that takes place in the
2) Transferring this research from the laboratory to the marketplace is primarily
the job of the private sector, with which the Federal Government snould not
3) The Federal Government can encourage the private sector to undertake this
by judicious reliance on market-oriented incentives and protection of propri-
The principal points of this act are shown in figure 16.
The principles enumerated were first tested by PL 96-517 and the FTTA re-
sponded to the lessons learned from that law, perhaps the most important of which
was its success in promoting university-industry cooperation.
The FTTA is, clearly, a direct highly beneficial legacy of PL 96-517.
THE CURRENT CLIMATE
The growth of technology transfer has taken place over the last 30 years in an
environment that has been slowly progressing from hostile to favorable. That pro-
gression was given major impetus by the passage of PL 96-517. During that period
we have seen a dramatic change in the attitude of the justice department and the
interpretation of the anti-trust laws where patents and anti-trust are no longer
viewed as antithetical. We have seen a move toward a favorable statutory basis
under which we have much greater freedom to operate. We have an active effort
on behalf of the administration to obtain equitable treatment for U.S. citizens in for-
eign venues, both in trade and intellectual property pursuits. We have had numer-
ous and far-reaching changes in the patent laws of those foreign venues which have
provided greater opportunities for technology transfer. We have had the benefit of
a knowledgeable court in the court of appeals for the Federal Circuit which has
slain many of the mythical dragons attached to intellectual property law to provide
uniformity of interpretation of those laws and before which we can expect equitable
treatment. We have obtained the attention of Congress and, particularly, the atten-
tion in that body to the university sector's perspective on intellectual property law
issues. We have seen an expansion of allowable patent coverage through unilateral
acts of the patent and trademark office, through decisions of the patent and trade-
mark office board of appeals and the courts, and we have seen the introduction and
passage of legislation favorable to the universities and their technology transfer ef-
forts. We have also seen developed, not only in the university sector, but in univer-
sity-industry relationships and university-industry-government relationships, a
greater awareness of technology transfer and a growing recognition of the possibili-
ties which can be made available through creative technology transfer efforts and
a much greater sophistication in handling those possibilities. Today we operate in
a climate which is better than it has ever been. We would like to think that much
of this has come about because the universities, as a source of fundamental discov-
eries and inventions, have been the source of enlightenment for a recognition of the
value of innovation.
A word of caution, however!!! We work in a very uncertain business where, on the
average, it takes in excess of 10 years and hundreds of thousands, even millions,
of dollEirs to bring an invention to the marketplace. We must also remember that,
as a licensor, we have very little actual control over the process by which an inven-
tion is brought to the market or how, ultimately, it is marketed. We are always vul-
nerable to the attacks of special interest groups, whether inside or outside govern-
ment, which are based not on fact but on emotion or which may be waged for psy-
chological reasons. As long as envy and jealousy are part of the human condition
such attacks are inevitable, only the intensity will rise and fall.
The emphasis today, as well as the buzzword in Washington is "competitiveness".
We are seeing mxirmurings and even tangible proposals to restrict the dissemination
of information from the university sector and even to curtail its technology transfer
efforts. We are in the midst of an effort by many nations, including the United
States, to harmonize their respective patent laws. In this regard, as an item of in-
terest, I have included a table, as figure 17, which shows the number of U.S. pat-
ents granted by nationality of inventor. Also, with respect to harmonization we are
faced with a recommendation from the advisory commission on patent law reform
which will, through the provision of prior user rights in a first-to-file system, dis-
enfranchise the universities, as well as other non-manufacturing entities utilizing
the patent system, from exercising the constitutionally-based right in the patentee
to exclude others.
We have already passed through an ERA where science was being made subser-
vient to politics. In today's technologically intense atmosphere, where the maximum
protection for intellectual property is more than ever necessary to provide protection
for the heavy investment necessary to technology development, we must remain
Even in the current favorable climate for the technology transfer fiinction as the
heritage of PL 96-517, views on the issues in the control of intellectual property,
whether by government or special interests, can lend themselves to emotional mold-
ing. Outspoken claims to the guardianship of the public interest or welfare is a rich
field for cultivating political power. We must never forget that freedom demands a
In the struggle to obtain the passage of PL 96-517 and then PL 98-620, as well
as on other pieces of proposed legislation which impinged on the university sector,
the universities, collectively, spoke with a loud and single voice. We must continue
to do so in all circumstances which threaten the rights and opportunities which we
have earned over many years by dint of persistence, patience and hard work. This
will require your active and continuing participation.
To quote Ralph Weddo Emerson:
What lies behind us and what lies before us are tiny matters compared to
what lies within us.
Patents Granted to U.S. University and Colleges
1,000 2,000 3,000 4,000 5,000
Patents Awarded to Top 100
Academic Research Performers
Percentage of academic
patents awarded to top
20 40 60 80 100
Number of top 100 performers awarded any patents
Patents to universities
doubled in past six years
Number of U.S. patents issued
■ To top 10 U.S.
D To U.S.
1986 IM? 1988 1989 1990 1991
MIT Leads in U.S. Patents
Awarded to Universities - 1991
Issued in 1991
Massachusetts Inst, of Technology
University of California
University of Texas
University of Wisconsin
University of Florida
Iowa State University
California Institute of Technology
University of Minnesota
State University of New York
Johns Hopkins University
University of Michigan
I— ( ^
f\joiC7>"0- — or-'^j-r-
CO — oor-m — •-'-cvj
^r^iootooJCM — CO
rnr-co-^ TCNjr- — ror^
cocsioor^ --co-^ -^uj
tOCM — to — OCMOJO*^
tOi^^Cvirg — •— u3loo>
r-Of-.(i>'XUD — mc7>-—
i/iojm-- — ottjoio
OJ— ■V'jno- ocy —
ojtD — o>ooc\)co — c4 (£)CM — or^O'^ooin
mr^-'^j-r- c«iO — csio-*
r>ma>TTc«JO — ooo
^cvjcno — om'^oo
'jooooo — on
o — toorjooocMCvj
o> c7>(MCDmcocNja>r>CM^ Tra>o>iDOCJCMO>ioo co — tDojajincjcvjcu--
a> oincM — or>in-<TCM— oo>cor-to»-»-ooo mcncor-r-r-r^i-^r-r^
o — r-'^T-vnr)cvio*CMCM cvj — — — — — — — »~ —
_ 2 .^ I B F
i5 £ > o >, s y
- 2 5 ^ I H I >
o ° ■
o a> u> o c o
c > nJ
(^ > c
, irt 1*1 — trt 3 5 irt "p
— S — — — ^ >c^.
Patents Awarded to U.S. Universities
by Technology Class: 1969-1990
Technology Class 1969-75 1976-^0 1981-85 1986-90
73 Measuring and Testing
204 Chemistry: electrical and wave energy
250 Radiant energy
324 Electricity: measuring and testing
350 Optics, systems and elements
356 Optics, measuring and testing
372 Coherent light generators
M24} Drug, bio-affecting and body treating
(435^ Chemistry: molecular biology and
436 Chemistry: analytical and
437 Semiconductor device manufacturing
(^14) Drug, bio-affecting and body treating
(^^30~) Chemistry: peptides or proteins; lignins
— or reaction products thereof
14 79 117
Patenting and Licensing of
Technology Resulting from NIH or NSF - Funded Research
(Fiscal Years 1989 and 1990) '
Patent Applications filed
Dollars in Millions
Income From Exclusive and Nonexclusive License
for NIH or NSF Funded Technology
(Fiscal Years 1989 and 1990)
Dollars in Millions
Patenting and Licensing of Technology Resulting
From All Sources of Funding
(Fiscal Years 1989 and 1990
Patent Applications Filed Patents Other License Income
Dollars in Millions
Individual UniversiUes' Patent and Liccnsiiij^ Activities
Invention applications Patents Licenses granted License
disclosures filed received Patents Other Income
Johns Hopkins 141
1976 1978 1979 1980 1982 1986 1986 1987 1988 1989 1990 1991 1992
Nalioiial and Academic R<JvD Kxi)endiliircs
by Cliaracter of Work and l^crCoriner:
catieniic R&D Nalionai R&D L3asic researcli Applied reseaicli
Sr/? billion) ($152 billion) ($23.5 billion) (S35 4 billion)
Character of University R&D Spending
Millions of Current Dollars
R&D Expenditures at the top 100 University
and Colleges, by Source of Funds: 1989
(Top 20 Shown)
Total, all institutions'
1 Massachusens institute ol Technology Private
2 Cornell University Private
3 Stanford University Private
4 University ol Wisconsin-Madison Public
5 University ol Michigan Public
6 University ol Minnesota Public
7 Teias A 4 M Universily-2» campuses Public
3 University ol Calilornlj-Los Angeles Public
9 University ol Washington Public
10 Pennsylvania Slate University
all campusfu Public
Total, 1st 10 Institutions
1 1 University ol Calilornia-San Francisco Public
12 Johns Hopkins UniversUy' Pfival*
13 University ol Calilornia-San Diego PubTic
14 University ol lUmois-UrtMna PubTic
15 University ol Calilornia-BerKelty Public
16 Harvard University Privalt
1 7 University ol Teias-Austin Public
18 University ol Calilornia-Davis Public
19 Georgia Insi ol Technology-all campuses. , . . Public
20 University Ol Arizona Public
Total, 1st 20 institutions
Academic Institutions Fund a Fifth
of all Academic R&D
Federal Government 59,9%
Instiiutional Funds 18,1%
Source: National Science Foundation
Other Sources 7,2%
State & Local Gov. 8.3%
Fiscal 1989 Academic R&D
Expenditures = $15 Billion
Sources of R&D Funds at Public
Institutions by Sector:
1980 vs 1989
Federal Government 61.1%
Academic Inst. 17.4%
Other Sources 6.2%
State & Local Gov. 11.7%
Federal Government 62.8%
Academic Inst. 23%
Other Sources 6.6%
State & Local Gov. 11.3%
91-388 - 95 - 4
Sources of R&D Funds at Private
Institutions by Sector:
1980 vs 1989
Federal Government 78.8%
Academic Inst. 7,4%
Other Sources 7.4%
tate & Local Gov. 2%
Federal Government 73.3%
Academic Inst. 8.8%
Other Sources 8.5%
State & Local Gov, 2.4%
Federal Technology Transfer Act of 1986
Amends the Stevenson-Wydler Act of 1980 (PL 96-480)
Strengthens Policy Making Technology Transfer Part of Lab Mission
Lab with More Than 200 S&E Personnel Must Have a Full Tim^ Orta ; "" ^
Each Agency must Report Annually with Budget Submission
Estabhshes the Federal Laboratory Consortium
Provides Authority for Government Labs to Enter into Cooperative R&D Agreements
Provides 15% of Royalties to Inventors and the M^ority of the Balance to Labs
U.S. Patent Granted by Nationality
of Inventor and Year of Grant: 1963-1990
w 5 s'j'r
' 227. 51B
^ S e»n«o
Fortign corporiuonf . ,
ro'«>g/i inOividuAtl ^ >
USSn ■ . -
SOURCE Paifni .no Ti.O.m./
OK.. P.LIWV ^'"^
.1 in« uni(.tf 5ui«i.
HJ-IM«(WuA^i«n. OC.AwgvU 1890).
fcnc. i Eng^tt'<f^ ifiCKtivi - 'fH'
Senator DeConcini. Thank you, Mr. Bremer. Those will be in-
cluded in the record.
Ms. Conta, would you, please, summarize your statement for us?
Your full statement will appear in the record.
STATEMENT OF BARBARA CONTA, DIRECTOR, TECHNOL-
OGYTRANSFER, REGENERON PHARMACEUTICAL CORP.,
TARRYTOWN, NY, REPRESENTING BIOTECHNOLOGY INDUS-
TRY ORGANIZATION, WASHINGTON, DC
Ms. CONTA. Mr. Chairman, thank you for your invitation to
present the views of the biotechnology industry here today.
My name is Barbara Conta and I am director of technology
transfer at Regeneron Pharmaceuticals in Tarrytown, NY. In my
testimony, I will describe the extraordinarily positive impact that
the Bayh-Dole Act has had upon companies such as Regeneron, but
I will also sound a warning that this effectiveness is threatened by
certain technology transfer policies of the NIH and by legislation
which may be introduced to codify and extend these policies.
Regeneron is representative of the U.S. biotechnology companies
in many ways. We were founded in 1988; we are young; we were
founded with a mission of developing biotechnology-based products
to treat neurological diseases and conditions for which no cures
exist. We are developing neurotrophic factors, which are proteins
that may have the potential to be used as drugs to treat a wide
variety of neurological conditions such as ALS, Neuropathies, Par-
kinson's Disease, and Alzheimer's Disease.
Regeneron currently employs 266 people. Our two leading prod-
uct candidates, BDNF and CNTF, are now in clinical trials for
ALS. Regeneron has no products on the market as yet.
I am here today to represent the views of Regeneron and also
Bio, the international trade organization which represents the
emerging biotechnology industry in the United States. We very
much appreciate the leadership of the Chairman and members of
this committee on patent issues of interest to the biotechnology in-
dustry, including the Biotechnology Patent Protection Act, and in
eliciting our views on technology transfer today.
I want to turn to the technology transfer process under Bayh-
Dole and the impact it has had on small biotechnology companies
such as Regeneron. Regeneron enters into several different types of
Bayh-Dole technology transfer agreements. Most frequently, they
are research collaboration agreements with academicians who want
Regeneron's scientific know-how and materials for their research
projects. In return for providing materials and scientific help, we
seek to license rights in any inventions which are generated. The
university thus has a potential licensee to satisfy its Bayh-Dole ob-
ligations and we may have access to a new and useful discovery.
Regeneron currently has agreements of this type with 329 inves-
tigators all over the world. Of interest to the members of this com-
mittee, I should mention that they include 1 from Alabama, 23
from California, 2 from Colorado, 15 from Massachusetts, 1 from
Utah, and 1 from Vermont. We don't have any from Arizona yet.
Regeneron provides proprietary substances to these investigators
with an aggregate value in the millions of dollars. So you can see
that the technology transfer process goes in both directions. We
transfer techrlology into federally-funded labs at at least the same
rate that we hope to transfer it out.
The transfer of technology under Bayh-Dole has been very pro-
ductive and successful for Regeneron, as it has for almost all bio-
technology companies. But with this successful process in place,
why are we concerned about a threat?
Our ability to commercialize the technology transferred to us is
dependent upon whether it is transferred under terms which recog-
nize the economic climate in which the biotechnology industry oper-
ates today. The transfer of technology to the private sector initiates
a long and costly process by the recipient company to develop the
technology and to evaluate its commercial potential. This process
requires years of basic and applied work with millions of dollars to
arrive at a product candidate. Many millions of dollars more are
then required to take the product candidate through the regulatory
approval process and bring it to market.
Most product candidates never make it to market, so a high de-
gree of risk accompanies this process.
As a corporation, we have shareholders who hope to receive a
reasonable return on the risk that they take by investing in our
company. Regeneron hopes some day to be a profit-making com-
pany. We strongly seek to justify the long-term expectations of our
investors, who often have to wait 5 to 10 years before biotechnology
companies begin to earn revenues. Only 1 percent of America's
1,300 biotechnology companies is profitable. As an industry, we lost
$3.6 billion last year.
We are absolutely dependent upon our ability to raise the capital
necessary to conduct our research since we have no profits as yet
to sustain our research. Investors have infinite other investment
opportunities. No amount of sentiment will convince them to invest
in our company if they don't feel that we have the potential to pro-
vide a rate of return that is commensurate with the risk they have
taken. Any factor that affects this potential to return investment —
such as the threat of drug price controls — drives away investors.
A fundamental threat to the Bayh-Dole Act has the potential for
undermining the effectiveness of technology transfer. This threat
comes from the practice of the National Institutes of Health to in-
clude drug pricing review clauses in its technology transfer agree-
ments. Alone among Federal agencies with technology transfer pro-
grams, the NIH has as a matter of administrative discretion in-
cluded certain terms which permit NIH to specify the price for any
product which is developed from the transferred technology.
This pricing clause now applies only to CRADA's relating to the
intramural and not the extramural research programs funded by
NIH. The statute does not require that NIH involve itself in pricing
products which are eventually commercialized as a result of a
CHAD A. In fact, many argue that the NIH practice is contrary to
NIH's statutory authorization.
The NIH price review process is undermining technology transfer
for one simple reason: there is no way for a private company to
evaluate the impact of the drug pricing clauses on the potential for
commercial development of a product. As a result, an increasing
number of biotechnology and pharmaceutical companies, including
Regeneron, now refuse to enter into CRADA's with NIH. This
means that a large portion of NIH intramural research is not cur-
rently being transferred to or developed by the private sector. The
flow has stopped.
Unfortunately, the threat from this discretionary NIH program
may soon be increased. Bio understands that legislation may short-
ly be introduced which would require the inclusion of drug pricing
clauses in NIH intramural technology transfer agreements. This
would not only prevent NIH from reforming its current practices,
which many at NIH are eager to do, but it would establish a dan-
gerous precedent that could be extended with disastrous results to
all extramural technology transfer programs. As we have seen with
CRADA's, this would effectively stop the flow of technology into the
The issue is not whether private companies are willing to share
the economic benefits of transferred technology with the Govern-
ment. We are willing to pay royalty fees and reasonable up-front
licensing fees. With a royalty requirement, a private company can
take these costs into account as it develops a product. This is
standard practice when one private company is licensing tech-
nology from another. Royalty requirements work because firms can
predict what they will cost and how they will affect their potential
for commercial success with the products.
Instead of attempting to set prices, NIH should aggressively li-
cense its technology in exchange for up-front cash payments or roy-
alties on sales. An effective NIH royalty process could generate up
to $1 billion in royalties.
In conclusion, I would like to praise Senators Bayh and Dole for
their foresight and craftsmanship on technology transfer policies.
Let me urge Congress to reject any new legislation which will un-
dermine the effectiveness of this landmark legislation and urge this
subcommittee and the NIH to review their current price review
poUcies. The U.S. biotechnology industry and the American public
have a vital stake in this process.
Thank you very much.
[The prepared statement of Ms. Conta follows:]
Prepared Statement of Barbara Conta on Behalf of the Regeneron
The Bayh-Dole Act is working because it reflects the economic and regulatory cli-
mate in which the biotechnology industry operates.
The effectiveness of the Bayh-Dole is threatened by the counter-productive tech-
nology transfer policies of the National Institutes of Health and legislation which
may be introduced which would codify these policies.
Alone among the Federal agencies with technology transfer programs, NIH has,
as a matter of administrative discretion, included in its technology transfer agree-
ments certain terms which give NIH the contractual right to specify the price for
any product of the firm which is developed from the transferred technology. This
pricing clause now applies only to CRADAs relating to the intramural (Bethesda)
and not the extramural (university and foundation) research programs funded by
Unfortunately, the threat from this discretionary NIH program may soon be
compounded. We understand that legislation may shortly be introduced which would
institutionalize the counter-productive technology transfer practices of the NIH.
The further risk with this legislation is not only that it would prevent NIH from
reforming its current practices but that it would establish a dangerous precedent
that could well be applied with disastrous results to all extramural technology
transfer programs and other federally funded programs to which it is later applied.
The risk of this legislation to federally funded technology transfer programs is not
theoretical or speculative. We know the risk is real because we have direct experi-
ence with the adverse impact on the NIH technology transfer process.
There is no clear rationale for why price controls would not apply to all licenses
of NIH grantees, including private universities and foundations. The NIH price con-
trol mechanism does not yet apply to the licenses of universities and foundations
which have received NIH grants despite the fact that these licenses may be entirely
based on the funding provided by the grants. It is in the direct interest of every
university and foundation grantee of the NIH to oppose any legislation to enshrine
the NIH "reasonable price" clause and in the interest of every other transferee of
government technology to oppose it as well.
Any legislation which confirms or extends the NIH price control scheme will set
a potentially dangerous precedent for all government technology transfer and busi-
ness assistance programs. Certainly every grantee of NIH is in jeopardy. There is
a very slippery slope here. There is no clear rationale why price controls should not
be imposed on CRADAs of other government agencies, including the Department of
Energy, grantees of the National Science Foundation, grantees of the Advanced
Technology Program, and recipients of SBIR awards.
Good morning. My name is Barbara Conta and I am Director of Technology
Transfer for Regeneron Pharmaceuticals, Inc. of Tarrytown, New York.
I will testify today to the wisdom of the Bayh-Dole Act, but I will explain that
its effectiveness is threatened by the counter-productive technology transfer policies
of the National Institutes of Health and legislation which may be introduced which
would codify these policies.
Regeneron was founded in 1988 to develop biotechnology-based products to treat
neurological diseases and conditions for which no cures exist. Regeneron is engaged
in the discovery and development of neurotrophic factors, which are naturally occur-
ring proteins that promote the survival and function of cells of the nervous system.
These neurotrophic factors may have the potential to be used as drugs to treat a
wide variety of neurological conditions, including motor neuron diseases such as
amyotrophic lateral sclerosis (ALS, commonly known as Lou Gehrig's disease), dis-
eases of the peripheral nervous system (such as diabetic neuropathy), and diseases
of the central nervous system (such as Parkinson's disease and Alzheimer's disease).
Regeneron has established its own research and development staff and facilities
in addition to entering into relationships with corporate partners and researchers
at major medical and academic institutions to pursue the development of these po-
tential therapeutic drugs. We currently employ 266 people in this discovery and de-
velopment effort! Our two leading product candidates, BDNF and CNTF, are pro-
teins manufactured through recombinant DNA technology. They are currently in
clinical trials to determine their safety and efficacy in the treatment of ALS, an in-
evitably fatal disease of motor nerves. Regeneron currently has no products on the
I am here today to represent the views of Regeneron and of the Biotechnology In-
dustry Organization (BIO), the international trade organization which serves and
represents the emerging biotechnology industry in the United States and around the
globe. As the leading voice for the biotechnology industry, BIO represents over 500
companies of all sizes, including Regeneron, which are engaged in the development
of products and services in the areas of agriculture, biomedicine, diagnostics, food,
energy and environmental applications. It also represents biotechnology centers at
A large portion of the biotechnology industry is focused on the development of
medical products. Twenty-three genetically engineered drugs and vaccines are now
commercially available to prevent or treat such diseases as AIDS, diabetes,
dwarfism, hepatitis, heart attacks, anemia, leukemia, renal cancer, organ transplant
rejection, and Kaposi's sarcoma. In addition, drugs and vaccines are being developed
by emerging biotechnology companies to treat such intractable diseases as cancer,
arthritis, Alzheimer's, ALS, and genetic disorders.
The biotechnology industry appreciates the interest of this subcommittee in solic-
iting the views of the biotechnology industry on the Bayh-Dole Act and technology
transfer programs. BIO and the biotechnology industry also very much appreciate
the leadership of the Chairman and members of this committee on patent issues of
interest to the biotechnology industry.
Perspective of a private corporation
Before I talk about the technology transfer process, it is essential to explain the
economic and regvilatory climate in which the biotechnology industry operates. Our
ability to commercialize the technology transferred to us is dependent on whether
it is transferred under terms which recognize this economic and regulatory climate.
Private corporations Uke Regeneron are in business to create medicines which can
improve the quality of life and health of individuals who are suffering from diseases.
We are intensely and emotionally involved with the pain and costs associated with
disease and its victims, their families, and caregivers. We are working in this indus-
try because of this involvement. The CEO of Regeneron is a board certified clinical
neurologist who also holds a Ph.D. in Pharmacology. Our senior management in-
cludes scientists and clinicians who have treated neurodegenerative diseases and
who joined Regeneron specifically to develop novel treatments for neurodegenerative
diseases for which no curative therapies currently exist.
As a corporation, we have shareholders who hope to receive a reasonable return
on the risk that they take by investing in our company. Our employees have stock
options and they hope that the value of their options will rise. Regeneron hopes to
be a profit-making company. We strongly seek to justify the long-term expectations
of our investors, who often have to wait for five to ten years before biotechnology
companies begin to earn revenues.
Approximately one percent of America's 1,300 biotechnology companies are profit-
able and as an industry we lost $3.6 billion last year. We are dependent upon our
ability to raise the capital necessary to conduct our research since we have no prof-
its as yet to sustain our research.
Our investors have infinite investment opportunities, and they tend to look at in-
vestments in our company or any other with the compassion of a statistician. No
amount of sentiment will convince them to invest in our company if they do not feel
we have the potential to provide a rate of return that is commensurate with the
risk they have taken.
Let me talk about some of the risks of investing in a biotechnology company. Bio-
technology investors take the risk that we will be able to identify molecules that
will change the pathology of disease, the risk that we will be able to demonstrate
to the FDA the safety and effectiveness of a medicine, and the risk that we will be
able to sell this medicine with a profit in the marketplace. Each one of these risks
In terms of the technological risk, it is estimated that only five in 4,000 com-
pounds screened in preclinical testing make it to human testing. Only one of those
five tested in people is approved for sale. The approval process is approximately
seven years for a biopharmaceutical, according to a recent article in BioPharm. The
same article added, 'The seven-year development time for biopharmaceuticals is an
average for the first successful products derived through biotechnology. This figure
does not include all biopharmaceuticals that reached the stage of clinical testing
during the 1980's. Because the biotechnology industry is still young, products with
relatively long development times are less likely to have been approved than prod-
ucts with relatively short ones." i
This scientific research is exceedingly expensive. The Office of Technology Assess-
ment finds that the average cost per new chemical entity (NCE) is $359 million. 2
This survey did not cover the cost of developing a biotechnology drug, but analyses
done by our industry find that the cost of developing a biotechnology drug may be
similar. We know that Genzyme and Amgen, two member companies of BIO, raised
$328 and $264 million, respectively, in equity before they brought their first prod-
ucts to market. Genentech has spent $1.6 bilhon on research and development and
has four basic products on the market.
The biotechnology industry is the most research intensive industry in the history
of civilian manufacturing, based on research and development as a percentage of
revenues and on a per employee basis. In a 1993 survey by Business Week seven
of the top ten firms in the U.S. in terms of research expenditures per employee were
biotechnolo^ companies — Biogen ($178,168 per employee), CJenentech ($115,893),
Centocor ($105,291), Amgen ($78,072), Chiron ($76,554), Genetics Institute
($66,572), and Immunex ($55,034 ).3 On average, biotech firms spend $59,000 per
employee on research. The U.S. corporate average was $7,106. Ernst & Young re-
1 Brigitta Bionz-Tadmor and Jeffrey S. Brown, "Biopharmaceuticals and Conventional Drugs:
Comparing Development Time," 44-49, BioPharm, (March 1994).
2 U.S. Congress, Office of Technology Assessment, Pharmaceutical R&D: Costs, Risks and Re-
wards, OTA-H-522 (Washington, DC: U.S. Government Printing Office, February 1993).
3 Peter Coy et al, "In the Labs, the Fight to Spend Less, Get More," Business Week, (June
28, 1993), 102-127.
ports that biotechnology companies spent $5.7 billion on research in 1993, a 14 per-
cent increase over 1992.4 The research is expensive for one simple reason; we are
advancing basic and applied science at the same time.
Public financing was especially difficult for biotechnology companies in 1993. The
American Stock Exchange Biotechnology Index lost 32.6 percent last year. Several
public biotech companies were forced to do private investment in public equity
(PIPE) financings, deals where public companies sell stock to private investors at
a discount to their current stock price. 1993 was a difficult year because in large
part investors were scared bv the de facto price controls in the Administration's
health care plan. They feared that some widely discussed points of health care re-
form would mean that they would not recoup their investment in a company that
was close to bringing a product to market. According to many press accounts and
three BIO surveys of our companies developing therapies for AIDS, cancer, and
other deadly and costly diseases, our companies are cutting back on research.
The biotech industry is in a critical stage of development and research. There are
23 biotech medicines that have been approved for sale in the U.S. by the Food and
Drug Administration (FDA). Two hundred and seventy biotech therapeutics and
cures are now in human clinical trials. According to Ernst and Young, two thousand
potential therapies and cures are in early development stages. 5 Now is the time
when the biotech industry needs increasing amounts of capital to bring these prod-
ucts to market so that they can improve our quality of life.
Ernst & Young reports that biotech companies are raising capital now at 25 per-
cent of their burn rate (the rate at which capital is being expended.) According to
a recent report by Dr. Robert Goldberg of the Gordon Public Pohcy Center at Bran-
deis University, 75 percent of biotechnology companies have 2 or fewer years of cap-
ital left. That means that a staggering 975 companies will need to go to the market
in the next two years or face severely restricting their activities, going out of busi-
ness, merging or selling rights to a larger firm.
The FDA risk for our companies is well known. We have had very public cases
where biopharmaceutical companies have failed to meet FDA's standards and have
found the value of their stock drop as much as 60 percent in a day. The caution
of the FDA in approving medicines is legendary. The whole process can take 5 to
10 years, adding to the cost and risk for investors.
Finally, let me comment on the commercial risk. We are operating in a much
more competitive and price sensitive health care climate. Purchasers of medicines
are better organized and more powerful than they have ever been before. They are
skeptical, they are tenacious and they are tough negotiators over price. If the Con-
gress passes a comprehensive health care reform plan, the economic constraints in
the marketplace will increase.
The technology transfer process
Let me now turn to the technology transfer process and the role of the bio-
technology industry. The fundamental purpose of government technology transfer
programs is to ensure that government investments in basic research lead to prod-
ucts and services in the market place which improve the quality of the lives of
The effective transfer of technology from government funded basic research to pri-
vate firms which will commercialize it helps to justify the huge appropriations for
basic research. The purpose of government basic research is not simply to provide
employment for scientists and administrators or to advance the cutting edge of
science. The purpose is also to conduct research that can improve our standard of
living, improve our health and welfare, and improve the competitiveness of U.S.
firms. The bottom Une in which these objectives are measured is in the market
place, not just in the laboratory.
Senators Tom Harkin and Mark Hatfield have introduced a proposal to establish
a biomedical research fund for NIH. The bill would require that a portion of the pre-
miums paid into a national health plan be allocated to fund basic research at NIH
and its grantees. This proposal makes sense if and when these funds will generate
commercial products that can improve the lives of patients. The proposal is, there-
fore, dependent on effective transfer of the government's basic biomedical research
to private firms which will develop products and take them through the FDA ap-
proval process. Without an effective technology transfer program at NIH, the ration-
ale for the Harkin-Hatfield legislation is diminished.
■» Ernst & Young, Biotech 94 Long Term Value Short Term Hurdles, Eighth Annual Report on
the Biotech Industry, VIII (1993).
5 Ernst & Young, Biotech 94 Long Term Value Short Term Hurdles, Eighth Annual Report on
the Biotech Industry 28-31 (1993).
When basic biomedical technology is commercialized, not only do patients benefit
but we all benefit from the economic growth and international competitiveness of
the firms to which the technology is transferred. These firms create jobs, create
value, and both the firm and its employees pay taxes which help to finance govern-
ment programs, including basic research.
The most common technology transfer agreements involve the licensing to a pri-
vate firm of patent rights (or potential patent rights) secured by a government fund-
ed research facility These agreements may typically require the private firm to pay
some fees at the time the technology is transferred and then to pay royalties if and
when the firm is able to develop a product for sale in the marketplace. The royalties
are a percentage of the sales generated by the product. If the firm is not able to
commercialize a product based upon the patent rights, no royalties are paid. Of
course, the government receives additional tax payments from corporations and in-
dividuals when technology is commercialized.
The transfer of the technology to the private sector initiates a long and costly
process by the recipient company to develop the technology and to evaluate its com-
mercial potential. This process often requires years of mrther basic and applied
work, and millions of dollars (in the case of a pharmaceutical), to arrive at a product
candidate. Many millions of dollars more are then required to take the product can-
didate through the regulatory approval process and oring it to market. Only then
will the public stand to benefit from the initial investment of federal funds in the
basic reseeirch project. Only then can the recipient company hope to recoup its ex-
penses in developing the product. Most product candidates never make it to market,
so a high degree of risk accompanies this process.
The technology transfer process in America is a long, interlocking chain with
many different links at different places. It is critical that we view the technology
transfer process chain as a whole and recognize that each player, or link, is critical
to the success of the whole. The strength of the U.S. system is acknowledged in Eu-
rope where a European Commission has said, "It is hard to escape the conclusion
that the U.S., rather than Europe, is now the main base for pharmaceutical R and
D and for therapeutic innovation * * *." One chief factor cited by the Commission
holding Europe back is a "fragmentation among universities and institutes which
do not tend to collaborate across nationed lines and particularly for biotechnology."
Regeneron typically enters into three different types of technology transfer agree-
ments under Bayh-Dole. These agreements have been successful and are very im-
portant to us. Most frequently, we enter into research collaboration agreements with
academicians who want Regeneron scientific know how and materials for their re-
search projects. In return for providing materials and scientific help, we seek to li-
cense rights in any inventions which are generated. The University thus has a po-
tential licensee to satisfy its Bayh-Dole obhgations, and we may have access to a
new and useful discovery. Regeneron currently has agreements of this type vnth 329
investigators all over the world. Of interest to the members of this Committee, I
should mention that they include one from Alabama, 23 from California, two from
Colorado, 15 from Massachusetts, one from Utah, and one from Vermont. (We are
still hoping for collaborators in Arizona, Iowa, and Wyoming!) Regeneron provides
proprietary substances to these investigators valued at $12,000-$ 120,000 per col-
laborator, with an aggregate value in the millions of dollars. You can see that the
technology transfer process goes in both directions — we transfer technology into fed-
erally funded labs at essentially the same rate that we hope to transfer it out.
In addition to collaboration agreements, we enter into license agreements or op-
tion agreements with federally funded labs for early stage technology. Some of these
technologies have included a protein factor from University of Iowa, receptors from
Salk Institute in California, and a protein controlling neural development from Uni-
versity of California, Berkeley. These are all license agreements under Bayh-Dole
technology transfers. We also have a very small number of sponsored research
agreements which include accompanying license rights, but we have limited funds
for external research support.
About the only type of technology transfer arrangement that we do not participate
in are CRADAs with NIH intramural scientists. We have declined to participate in
any CRADAs because we cannot risk the uncertainty engendered by the drug pric-
ing clause inserted into NIH CRADAs, a point I will address further.
You can see that technology transfer under Bayh-Dole has been very productive
and successful for Regeneron and our external scientific collaborators, as it has for
almost all biotechnology companies. We would like to thank Senators Bayh and Dole
for the very positive impact their bill has had on the biotechnology industry.
At its best, the technology transfer process as it applies to public institutions, pri-
vate universities and foundations should be modeled on the commercial relation-
ships among private corporations. It is clear that the more these government or gov-
ernment grantee technology transfer agreements resemble the agreements between
private corporations, the more effective they will be in realizing the objectives of the
government's investment in basic research. The appreciation of a government agen-
cy of the economic and regulatory climate in which the biotechnology industry oper-
ates will determine whether a technology transfer program of federally funded re-
search will succeed or fail.
Success of the Bayh-Dole Act
The Bayh-Dole Act does, in fact, model the government's technology transfer
agreements on those which we find among private corporations and this is the rea-
son for its outstanding success. It takes the perspective of private corporations into
account. It understands the special role we can play and the constraints under
which we operate. It is the paradigm of enlightened government technology transfer
programs which maximizes the value of the investment of the government in basic
I would like to describe a technology transferred to Regeneron under Bayh-Dole
from the University of California, Berkeley which we are very excited about. Profes-
sor Richard Harland, a young investigator at UC Berkeley, cloned a gene which,
when injected into frog embryos, caused the formation of very large heads. He
named the protein noggin. Regeneron was intrigued by the potential of noggin to
form neural tissue and perhaps to have use in treating degenerating neural tissue.
After estabUshing a scientific basis for collaboration with Professor Harland,
Regeneron entered into an option agreement under Bayh-Dole with UC Berkeley for
noggin. In one month (a very short time to achieve this result), we cloned the
human noggin gene, and began evaluating its potential as a drug. More than one
year has now passed. We have devoted substantial scientific expertise and hundreds
of thousands of dollars, and we know a lot more about noggin. We remain excited
about it. However, we don't know yet how to use noggin as pharmaceutical to treat
neurodegenerative disease. It may take several more years of intensive (and expen-
sive) research at Regeneron to find the answer. When we do, we would expect to
bring noggin to the market, and pay royalties to UC Berkeley. We consider this to
be a technology transfer arrangement with great potential, illustrating the very es-
sence of the intent of the Bayh-Dole Act.
The success of conunercialization of technology transferred under the Bayh-Dole
Act is thus due in large part to the huge investments by private biotechnology and
pharmaceutical companies in basic and applied research. The U.S. has the most
competitive and successful biopharmaceutical industry in the world with an unsur-
passed ability to commerciahze basic research. Let me emphasize that government
funded basic research, while it is an important source of technology, is not the only
source for such technology or even the principal source of such technology. The prin-
cipal source of technology for Regeneron is Regeneron scientists, who are funded en-
tirely by the private sector.
My basic point, however, is that every player in the technology commercialization
process needs to play its appropriate role for the process to succeed in developing
commercial products for the public good.
Threat to the Bayh-Dole Act
A fundamental threat to the Bayh-Dole Act is under discussion. This threat not
only has the potential for undermining the effectiveness of this law, it actually has
the potential to undermine the effectiveness of all government technology transfer
and Dusiness support programs.
The threat comes from the conflict between the fundamental purpose of govern-
ment technology transfer programs and the practice of one agency, the National In-
stitutes of Health. Alone among the Federal agencies with technology transfer pro-
grams, NIH has, as a matter of administrative discretion, included in its technology
transfer agreements certain terms which give NIH the contractual right to specify
the price for any product of the firm which is developed from the transferred tech-
nology. This pricing clause now applies only to CRADAs relating to the intramural
(Bethesda) and not the extramural (university and foundation) research programs
funded by NIH. No statute requires that NIH involve itself in pricing products
which are eventually commercialized as a result of work done through a CRADA.
Many argue that this NIH practice is contrary to NIH's statutory authorization.
Unfortunately, the threat from this discretionary NIH program may soon be
compounded. BIO understands that legislation may shortly be introduced which
would institutionaUze the counter-productive technology transfer practices of the
The further risk with this legislation is not only that it would prevent NIH from
reforming its current practices, which many at NIH are eager to do, but that it
would establish a dangerous precedent that could well be applied with disastrous
results to all extramural technology transfer programs and other federally funded
programs. The risk of this legislation to federally funded technology transfer pro-
grams is not theoretical or speculative. We know the risk is real because we have
direct experience, and this has deterred Regeneron from participating in any
The NIH price review process is undermining technology transfer for one simple
reason: there is no way for a private firm to evaluate the impact of the drug pricing
clauses on the potential for commercial development of a product. As a result an
increasing numoer of biotechnology and pharmaceutical companies, particularly
large companies which have ample resources and scientific capacity to fund their
own research and develop their own technology, now refuse to enter into CRADAs
The issue is not whether private companies are willing to share the economic ben-
efits of transferred technology with the government. We are willing to pay reason-
able fees and royalties. With a royalty requirement a private company can take
these costs into account as it develops a product. This is standard practice when one
Erivate company is licensing technology from another. Royalty requirements work
ecause firms can predict what they will cost and how they will affect their poten-
tial for commercial success with the product.
Many independent studies have found that the NIH discretionary price review
process is crippling the technology transfer process at NIH.
• The NIH insistence on price controls has "nearly ruined the system," said Dr.
Steven Paul, the former scientific director of the National Institute of Mental
Health and a creator of the NIH technology transfer program. Cited by Dr. Rob-
ert Goldberg in "Race Against the Cure: The Health Hazards of Pharmaceutical
Price Controls," Policy Review, Spring 1994 (number 68) at 34.
• A recent report by the HHS Inspector General noted that the controversy at
NIH over CRADA pricing threatens support for the program (Office of Inspector
General, Dept. of HHS, Technology Transfer and the Public Interest: Cooperative
Research and Development Agreements at NIH (OEI-92-01100) (Nov. 93)). This
report finds that the use of an arbitrary and unpredictable "reasonable price
clause" is undermining the transfer of NIH patents to private companies. Many
private biomedical research companies now refuse to participate in CRADAs.
This fact undermines the rationale for appropriating so many billions of dollars
to fund this basic research. The impact of these price controls has been star-
tling. 1993 was the worst year for new CRADAs in the history of the program.
Moreover, most of these new CRADAs do not involve drug development, a trend
that results from the application of the pricing clause.
• Dr. Bruce Chabner, Director of the National Cancer Institutes (NCI) Division
of Cancer Treatment, in testimony at a congressional hearing last year dis-
cussed specific instances in which companies have discontinued projects or sus-
pended CRADA negotiations because of concerns raised by the "reasonable pric-
ing clause." Chabner noted that "Other companies have simply refused to be-
come involved with the NCI in early drug development * * *. NCI has no doubt
that companies will not accept the risks of investing large sums in the develop-
ment of a government product if their freedom to realize a profit is restricted.
These companies are not willing to put their corporate fate in the hands of a
government-appointed committee of experts. There are less risky ways for com-
panies to make a profit." Testimony of Dr. Bruce Chabner. Director of the Divi-
sion of Cancer Treatment. National Center Institute before the House Sub-
committee on Regulation. Business Opportunities and Energy of the House Com-
mittee on Small Business (Jan. 25, 1993).
• The Committee to Study Medication Development at the National Institute on
Drug Abuse states that the "reasonable-pricing clause required in (DHHS
CRADAs) in the last year has been identified by NIDA as a major deterrent to
attracting private-sector partnerships * * *." The Committee "recommends a
change in the reasonable pricing provisions of DHHS CRADAs so that licensees
or manufacturers of medications know explicitly the ultimate pricing or pricing
structure for their potential therapeutic agent." It found that the number of
CRADAs established by NIH had dropped from 126 in 1992 to about 26 in 1993.
Development of Anti- Addiction Medications: Issues for the Government and Pri-
vate Sector, Institutes of Medicine, 1994.
• A recent article cites NIH officials attributing the price control clause for the
precipitous decline in CRADAs. "Many pharmaceutical companies are reconsid-
ering CRADAs, and NIH officials say four of the largest * * * have told NIH
that they plan to forego new CRADAs unless the pricing clause is removed."
Christopher Anderson, "Rocky Road for Federal Research Inc.", Science, 497
(October 22, 1993).
• The Cancer Letter has recently published a draft "Action Plan on Breast Can-
cer" developed from a recent NIH conference convened by Secretary Donna
Shalala which recommends "increase(d) efforts to speed the translation of basic
research into clinical applications" and "review of the reasonable pricing clause
in relation to CRADAs, as they impact of the flow of industrial funds into clini-
cal research and, thus, affect collaborations." Cancer Letter, March 25, 1994.
The NIH discretionary price control clause in CRADAs is undermining the trans-
fer of this government developed technology. It is also clear that such a mechanism
would undermine every government program to which it might be applied.
No one in the biotechnology industry is arguing that private biopharmaceutical
companies should be permitted to charge unreasonable prices for their products. We
do not charge unreasonable prices for our products now, which is demonstrated by
the fat that the prices for biotechnology products tend to be higher, not lower, out-
side the U.S.
A 1992 study by the investment bank Robertson Stephens and Company compares
international prices for the leading biotech drugs in the U.S. and Japan. It shows
that the prices of these drugs tends to be much higher in Japan (which sets drug
prices) than in the U.S., often three times as high. For example. Human Growth
Hormone is priced at $14 in the U.S. and $53 in Japan.; G-CSF is priced at $112
in the U.S. and $375 in Japan; EPO is priced at $40 in the U.S. and $99 in Japan
and Alpha Interferon is priced at $8.75 in the U.S. and $25 in Japan. Japan adopted
this pricing policy because it prizes innovation and wants to develop a biotech indus-
try that can compete with ours.
Companies that develop breakthrough drugs often feel pressures as soon as they
reach the market place. The real period of exclusivity in the market is likely to be
2-4 years, not the 17 years of a patent. It is remarkable how quickly other compa-
nies will develop competing drugs. A company certainly cannot charge a price that
consumers or their insurers cannot or are unwilling to pay, and HMO's are very
tough bargainers with any supplier of medical products. In addition to direct market
pressure, companies also are sensitive to public controversy, criticism from Congress
and the Administration, Congressional oversight hearings, and other types of pro-
tests. They all have an impact on pricing decisions. They are part of the "market"
that determines drug and all other prices in our economy.
Instead of attempting to set prices, NIH should aggressively license its technology
in exchange for upfront cash pajonents and/or royalties on sales. The precise
amounts of these payments or royalties should be determined by negotiation be-
tween the parties and could vary, based on (among other things) the stage at which
the technology is transferred. Innovative payment and royalty agreements could be
developed. /^ effective NIH royalty process could generate hundreds of millions of
dollars in royalties. These royalty payments could be made into a Harkin-Hatfield-
type of biomedical research trust to fund more basic research.
The worst possible scenario is for the government to continue its basic research,
or to expand it with the help of the Harkin-Hatfield trust fund, and then refuse to
license its technology on terms that will ensure that it will be commercialized. Ev-
eryone loses with this approach, including taxpayers who fund the research, citizens
who might benefit from the products, firms which could hire employees and pay
taxes, and the United States for decreased competitiveness.
The biotechnology industry is willing to compete in a competitive health care mar-
ket. We are confident that our products will be found in that marketplace to be both
medically effective and cost effective. How that market is structured is an issue to
be determined in the health care reform debate, not by NIH on an ad hoc basis in
revievdng the prices of the medicines that are developed based on transferred tech-
nology. That review will have one impact on the cost of medicines; it will ensure
that medicines based on NIH technology are not brought to market where pricing
issues could be aired.
Price review burns the village to "save" it.
Precedent set by NIH price controls
The NIH price control concept is apparently premised on the following argument:
a private entity which receives any government assistance in connection with any
phase of the development of a commercial product should not be free to set the
prices for that product in the marketplace.
If this is the concept, then there is no clear rationale for why price controls would
not apply to all licenses of NIH grantees, including private universities and founda-
tions. The NIH price control mechanism does not yet apply to the licenses of univer-
sities and foundations which have received NIH grants despite the fact that these
Ucenses may be entirely based on the funding provided by the grants.
There is also no clear rationale why pricecontrols should not be imposed on
CRADAs of other government agencies, including the Department of Energy, grant-
ees of the National Science Foundation, grantees of the Advanced Technology Pro-
gram, recipients of SBIR awards, and borrowers of government guaranteed or sub-
sidized loans. .
There is no principle that would provide a basis to not include price controls in
every Federal program. Would price controls be imposed on any private company
which claims a research and development tax credit, receives a patent or cooyright
or transports products on government constructed interstate highways? Any legisla-
tion which confirms or extends the NIH price control scheme will set a potentially
dangerous precedent for all government technology transfer and business assistance
Let me be clear. If the NIH drug pricing clauses are confirmed in legislation, even
if the law applies only to NIH's intramural technology transfer program, every
grantee of NIH is in jeopardy. There is a very slippery slope here. There is no bright
line to distinguish direct and indirect NIH technology transfer, no political principle,
and no guarantee. It is in the direct interest of every university and foundation
grantee of the NIH to oppose any legislation to enshrine the NIH reasonable price"
clause and in the interest of every other transferee of government technology to op-
pose it as well.
S. 1537 and NIH CRADAs
Our industry supports the goals of S. 1537, the Technology CommerciaUzation Act
of 1993, introduced by the Chairman of this Subcommittee, Senator DeConcini and
Senator Rockefeller. We believe it would enhance the competitiveness of the U.S.
biotech industry. The bill would ensure that the ownership of any invention or other
intellectual property developed under a CRADA belongs to the company or compa-
nies which develop it. We appreciate that the bill focuses on the vital role which
private businesses play in commercializing government funded basic research.
We especially appreciate the emphasis in the legislation on the Government lab-
oratory receiving ^reasonable compensation" for the technology that is transferred.
The BIO member companies are wiUing to negotiate royalties or other arrangements
with the Government when they license and then commercialize intellectual prop-
erty transferred by the Government.
We believe that S. 1537, if enacted into law, should be interpreted to assume that
NIH will receive "reasonable compensation." There is no need to go further. Indeed,
the legislation should clearly provide that further regulation like the "reasonable
price" clause is inconsistent with the purpose and effectiveness of technology trans-
fer and not authorized. I am confident that BIO would strongly support the legisla-
tion if that is how it is interpreted.
Competitiveness of Biotechnology Industry
The technology transfer issues here are not just important for government agen-
cies and patients. The United States currently has the dominant biotechnology re-
search and commercial capabilities when compared with any other country in the
world The success of the Bayh-Dole Act is one of the reasons for this dominance.
Any policies which undermine it or confirm the counter-productive NIH price pre-
view policy will adversely affect the competitiveness of the biotechnology industry.
American researchers developed much of the basic science of the ne\v bio-
technology, and the United States continues to lead the world in the commerciahza-
tion of most emerging biotechnology products. Precisely because the U.S. is^ pre-
eminent in the field of biotechnology, it has become a target of other country s in-
dustrial policies. ^^.. ^ , ., X A i. 1- 13 1
In 1991 the Office of Technology Assessment (OTA) found that Australia, Brazil,
Denmark,' France, South Korea and Taiwan (Republic of China) all had targeted bio-
technology as an enabling technology. Furthermore, in 1984, the OTA identified
Japan as the major potential competitor to the United States in biotechnology com-
The OTA identified the manner in which Japan had targeted biotechnology. Its
In 1981, the Ministry of International Trade and Industry (MITI) des-
ignated biotechnology to be a strategic area of science research, marking
the first official pronouncement encouraging the industrial development of
6 U.S. Congress, Office of Technology Assessment, Biotechnology in a Global Economy 243 (Oc-
biotechnology in Japan. Over the next few years, several ministries under-
took programs to fund and support biotechnology.
The Japanese Ministry of Health and Welfare instituted a poUcy whereby existing
drugs would have their prices lowered, while allowing premium prices for innovative
or important new drugs, thus forcing companies to be innovative and to seek larger
It is widely recognized that the biotechnology industry can make a substantial
contribution to U.S. economic growth and improved quality of life. For example:
• The National Critical Technologies Panel, established in 1989 within the White
House Office of Science and Technology Policy by an Act of Congress,^ calls bio-
technology a "national critical technology" that is "essential for the United
States to develop to further the long-term national security and economic pros-
perity of the United States." 9
• The private sector Council on Competitiveness also calls biotechnology one of
several "critical technologies" that will drive U.S. productivity, economic growth,
and competitiveness over the next ten years and perhaps over the next cen-
• The United States Congress Office of Technology Assessment calls bio-
technology "a strategic industry with great potential for heightening U.S. inter-
national economic competitiveness." OTA also observed that "the wide-reaching
potential applications of biotechnology He close to the center of many of the
world's major problems — malnutrition, disease, energy availability and cost, and
pollution. Biotechnology can change both the way we Uve and the industrial
community of the 21st century." n
• The National Academy of Engineering characterizes genetic engineering as one
of the ten outstanding engineering achievements in the past quarter century. 12
• Lester Thurow and Robert Reich have recommended policies that shift invest-
ment and resources away from declining segments of manufacturing and into
services and emerging industries such as biotechnology and computers. i3
The importance of the biotechnology industry to America's competitiveness war-
rants development of a comprehensive biotechnology strategy that takes into ac-
count the incfustry's strengths, weaknesses and needs.
In conclusion, let me praise Senators Bayh and Dole for their foresight and crafts-
manship on technology transfer poUcies, urge Congress to reject any new legislation
which will undermine the effectiveness of this landmark legislation, and urge this
Subcommittee and the NIH to review the current price review pohcies. The Amer-
ican public and the U.S. biotechnology industry have a vital stake in these issues
and BIO will work with anyone who will further these aims.
Thank you very much for inviting me to testify here today, and I am happy to
attempt to answer your questions.
Senator DeConcini. Thank you.
STATEMENT OF CHARLES M. VEST, PRESIDENT, MASSACHU-
SETTS INSTITUTE OF TECHNOLOGY, CAMBRIDGE, MA
Mr. Vest. Mr. Chairman, I am very pleased to have the oppor-
tunity to summarize briefly for you MIT's experiences with tech-
nology transfer under the Bayh-Dole Act.
■7 U.S. Congress, Office of Technology Assessment, Biotechnology in a Global Economy 244-245
(October 1991). „ ,„.„..„
sNational Competitiveness Technology Transfer Act, Pub. L. No. 101-189, 103 Stat. 1352 (42
U.S.C. §6681 et seq.). , ^ . , ^ ^
sWhite House Office of Science and Technology Policy, Report of the National Critical Tech-
nologies Panel 7 (1991).
10 Council on Competitiveness, Gaining New Ground: Technology Priorities for America s Fu-
ture 6 (1991).
iiU.S. Congress, Office of Technology Assessment. New Developments in Biotechnology; U.S.
Investment in Biotechnology-Special Report 27 (July 1988).
12 National Academy of Engineering, Engineering and the Advancement of Human Welfare: 10
Outstanding Achievements 1964-1989 2 ( 1989).
isChoate, Pat, The High Flex Society— Shaping America's Economic Future 169 (1986).
As you know, this act was intended to promote commercialization
and use by industry of inventions arising from federally-sponsored
research. One of its key provisions was allowing universities to re-
tain the rights to intellectual properties they developed under Fed-
In our experience, the Bayh-Dole Act has been remarkably effec-
tive in meeting three objectives: first, encouraging researchers to
identify the commercial potential of inventions arising from feder-
ally-funded research; second, providing the means and incentives
for industry to invest in these early, and therefore high-risk inven-
tions; and third, promoting collaboration between industry and aca-
demia partnerships that have resulted in the creation of new in-
dustries, companies, and jobs based on new technologies.
As you may know, MIT has been particularly active in the field
of technology transfer. Since I know my own institution best, I
would like to cite it as a case in point.
Last year, MIT filed patents for over 150 new inventions and a
total of over 250 U.S. patents. We were granted 106 U.S. patents
and we signed over 75 licensing agreements covering for almost
These activities were guided by the goals of the Bayh-Dole Act
to enhance U.S. industry and competitiveness. Over 95 percent of
our licenses are to U.S. companies. We now have over 350 active
license agreements in our portfolio, each one requiring the licensee
to invest in the development of our inventions.
I should note that virtually all university licenses contain new
diligence requirements that ensure commercial development of the
licensed invention. We take very seriously our responsibility to see
that our licensees are indeed putting our inventions to good use.
Another goal of the Bayh-Dole Act was to minimize the cost to
the Government of administering its technology transfer policies.
Over the past decade or so many universities have helped to
achieve this goal by developing a cadre of technology transfer and
intellectual property experts who, because they speak the lan-
guages of both academia and industry, are quite good at facilitating
our interactions. And because of this, they are very skilled at mov-
ing the inventions from the laboratory, so to speak, to the assembly
The assembly line may be one that already exists, or it may and
often does take the form of the creation of new companies. For ex-
ample, over 50 new companies have been started through MIT li-
censes since we reorganized our technology licensing office in 1986.
I really cannot overemphasize the importance of this last point.
The number of companies is one thing, but the number of jobs gen-
erated by companies is another. These new spin-off companies have
created more than 2,000 jobs over the past 8 years, this during one
of the worst periods of the Massachusetts economy in recent times.
That, Mr. Chairman, in my view is what technology transfer must
ultimately be about.
Another point is that the 50 or so recent spin-off companies have
a market capitalization exceeding $2.5 billion, yet they were cre-
ated with cumulative venture investments of less than $100 mil-
lion, true amplification in technology transfer.
So far I have talked to the benefits of the Bayh-Dole Act to the
larger economy, but I would like to say just a word or two about
the benefits to us as research universities.
We do receive some modest royalty income. We appreciate every
bit of it, particularly since these funds can be used in a very flexi-
ble way to support scholarships for students and salaries for fac-
The primary benefit to the university, however, I believe takes
other forms. These include the creation of an entrepreneurial fer-
ment on our campuses. Faculty consider the practical implications
of their research. Students think about starting companies. Alumni
visit us looking for new opportunities to combine their business ex-
perience with MIT technology. Industrial colleagues meet on our
campus with faculty every day. Many venture capitalists see us as
Research support from industry has increased during this period.
Our technology transfer interactions have increased the opportuni-
ties for graduate student employment and for faculty consulting in
industry. Our interactions with industry bring real-world tech-
nology in management issues into our own laboratories and into
our classrooms. They keep us current, grounded, and forward-look-
Most important, though, the Bayh-Dole Act has helped us to ful-
fill our goal of working with industry to develop technology for the
public good while still maintaining an academic atmosphere condu-
cive to long-term research, open discussion and publication of our
findings, and to the very best in education.
In short, Mr. Chairman, MIT's experience with the Bayh-Dole
Act affirms the wisdom of the policy that it has codified and the
need to sustain it.
Thank you very much.
[Mr. Vest submitted the following:]
Prepared Statement of Charles M. Vest
Mr. Chairman, distinguished members of the Committee, I am Charles Vest,
president of the Massachusetts Institute of Technology. I am very pleased to have
this opportunity to speak with you about the success of technology transfer under
the Bayh-Dole Act.
As you know, the Act was intended to promote the commercialization and use by
industry of inventions arising from federally sponsored research. One of its key pro-
visions was allowing universities to retain the rights to the intellectual property
they developed with federal funds. Prior to 1980, patents resulting from such re-
search were owned by the government, but relatively few were being licensed. (By
1978, the government held 28,000 patents, of which only 5 percent had been li-
censed.) In short, the fruits of academic research were not being used by industry.
In our experience, the Bayh-Dole Act has been remarkably effective in meeting
its objectives of:
• encouraging researchers to identify the commercial potential of inventions aris-
ing from federally funded research;
• providing the means and incentives for industry to invest in these early and
therefore high-risk inventions; and
• promoting collaboration between industry and academia — partnerships that
have resulted in the creation of new industries, companies and jobs based on
these new technologies.
A CASE IN POINT: TECHNOLOGY TRANSFER FROM MIT
Let me give you some evidence of success:
A recent national survey reported that 2,700 patents were filed by American uni-
versities and research institutions in 1992, and over 1,500 licenses were granted.
As you may know, MIT has been particularly active in the field of technology trans-
fer, and since I know my own institution best, let me use it as a case in point.
• MIT filed over 150 patents on new inventions (and a total of over 250 US pat-
• we were granted 106 US patents, and
• we signed over 75 licensing agreements, for almost 100 inventions.
These activities are guided by the goals of the Bayh-Dole Act to enhance US in-
dustry and competitiveness.
Over 95 percent of our licenses are to US companies. The mandated preference
for US industry has not been a handicap in our technology transfer efforts. In fact,
it has worked to our advantage. It has increased public support for the technology
transfer mission and has helped to concentrate our efforts close to home, thus facili-
tating interaction between companies and faculty inventors, something that is es-
sential in the development of early stage technology.
We now have over 350 active license agreements in our portfolio — each one requir-
ing the licensee to invest in the development of the inventions. Our estimate is that
for every dollar a company invests in licensing fees to MIT, it invests another 50
to 100 dollars in developing the technology.
I should note that virtually all university licenses contain diligence requirements
that ensure commercial development of the licensed invention, and we take seri-
ously our responsibility to see that our licensees are indeed putting our inventions
to good use.
Another goal of the Bayh-Dole Act was to minimize the cost to the government
of administering its technology transfer policies. Over the past decade or so, many
universities have helped to achieve this goal by developing a cadre of technology
transfer and intellectual property experts who, because they speak the language of
both academia and industry, are very good at facilitating our interactions. These
professionals are able to accommodate the needs of industry while helping to pre-
serve the special policies, objectives, and long-range view that are characteristic of
the academic world. And because of this, they are very skilled at moving inventions
from the laboratory to the assembly line.
The "assembly line" may be one that already exists, or it may (and often does)
take the form of new company creation. For example, over 50 new companies have
been started through MIT licenses since we reorganized our Technology Licensing
Office in 1986.
I cannot overemphasize the importance of this latter point. The number of compa-
nies is one thing. The number of jobs generated by new companies is another. These
new spin-off companies created more than 2,000 jobs over the past eight years — this,
during one of the worst periods of the Massachusetts economy in recent years. That
is technology transfer.
(Over the years, MIT faculty and graduates have founded over 800 companies in
Massachusetts and California alone — which in turn have generated over 450,000
jobs in direct employment or through the economic impact of these companies.)
Another point: The 50 or so recent spin-off companies have a market capitaliza-
tion greater than $2.5 billion, yet they were created with cumulative venture invest-
ments of less than $ 100 million. And that is technology transfer.
BENEFITS TO THE UNIVERSITIES
So far, I have talked of the benefits of the Bayh-Dole Act to the larger economy,
but I would like to say just a word about the benefits to the research universities.
• We do receive some modest royalty income, and we appreciate every bit — par-
ticularly since these are funds that can be used to support scholarships for stu-
dents and salaries for professors. Over the past five years, at MIT, net royalty
income has averaged less than one-half of one percent of our total budget.
The primary benefits to the universities, however, take other forms. They include:
• An entrepreneurial ferment on campus. Faculty consider the practical implica-
tions of their research. Students think about starting companies. Alumni and
alumnae visit us to look for opportunities to combine their business experience
with MIT's technology. Industrial colleagues meet with faculty every day. And
venture capitalists see us as a "must stop."
• Research support from industry has increased. We frequently combine a license
to a federally funded invention with a sponsored research contract for further
development of that invention. (In fiscal year 1993, MIT received $62 million
in research support from industry; this was just over 17 percent of our campus
• Our technology transfer interactions have increased the opportunities for grad-
uate student employment and for faculty consulting in industry.
• Our interactions with industry bring real-world technology and management is-
sues into our research laboratories and into our curricula. They keep us current,
grounded, and forward-looking.
Most important, though, the Bayh-Dole Act has helped us to fulfill our goal of
working with industry to develop technology for the public good, while still main-
taining an academic atmosphere conducive to long-term research, open discussion
and publication of our findings, and the best in education.
MIT's experience with the Bayh-Dole Act affirms the wisdom of the policy and the
need to sustain it. The policy works.
Massachusetts Institute of Technology,
Office of the President,
May 23, 1994.
Hon. Dennis DeConcini,
Subcommittee on Patents, Copyrights and Trademarks,
U.S. Senate, Washington, DC.
Dear Senator DeConcini: Dr. Charles M. Vest, president of the Massachusetts
Institute of Technology testified before the Subcommittee on Patents, Copyrights,
and Trademarks on April 19, 1994. He has requested that the attached information
be included in the record for the hearing, "The Bayh-Dole Act: A Review of Patent
Issues in Federally Funded Research." Dr. Vest appreciates the opportunity to pro-
vide your Subcommittee with this information.
Laura B. Mersky,
Administrative Assistant to the President.
The Bayh-Dole Act
international considerations of patent issues in federally funded research
The need for international involvement
The scientific community has learned that the most rapid progress is made when
even preliminary research results are widely shared as quickly as possible. For ex-
ample, the discovery of the basic techniques of genetic engineering led to a world-
wide flurry of activity in universities and industry. As a result steady progress has
been made in the underlying science and industry is now beginning to realize its
considerable commercial potential.
A central goal of universities is to encourage access to knowledge. Faculty and
students must be able to share their work with the rest of the international re-
search community, because such cooperation is a crucial part of the testing and
evaluation which leads to progress in basic research. No insight or research funding
is considered vaUd until it has been published in one or more of the thousands of
international technical or scientific journals. In addition to providing a formad mode
of communication and record of a researcher's progress and achievements, publica-
tion allows others working in the field to challenge, verify, or build upon the find-
International outreach is essential for our universities if they are to maintain
their excellence in research and education and if they are to prepare students ade-
quately for the challenges they will face in an increasingly international world soci-
Patenting and licensing considerations
Although the vast majority of basic research results do not lead to patents, occa-
sionally university results do lead to an idea which is suitable for protection as a
patentable invention. MIT is one of the more active universities in this area. In
1993, for example, MIT scientists and engineers had 345 invention disclosures, the
Institute filed 226 patent applications in the U.S., received 125 patents from earlier
applications, and made 71 new licensing agreements and 12 option agreements. At
MIT, this work is carried out by the university's Technology Licensing Office.
The MIT Technology Licensing Office has been very successful in making sure
that MIT patents bring benefit to American Taxpayers. Going beyond the require-
ments of the Bayh-Dole Act, MIT requires that if a product using an MIT patent
(even if developed without federal support) is to be sold in the U.S., substantial
manufacturing must take place in our country.
At the end of 1993, MIT had 417 active licensing agreements. There were 42 li-
censes to foreign owned firms, and only 6 of the foreign licenses were exclusive.
Over 95 percent of exclusive licenses of MIT patents were to U.S. firms. Thus MIT
licenses overwhelmingly to firms owned and based in the U.S.
MIT's Technology Licensing Office has carried its role even further, helping to es-
tablish over 50 new companies since 1988. These companies employ more than 2,000
people and have a market capitalization greater than $2.5 billion; they were created
with a cumulative venture capital investment of about $100 million.
Senator DeConcini. Thank you very much.
STATEMENT OF GARY MUNSINGER, PRESIDENT, RESEARCH
CORPORATION TECHNOLOGY, TUCSON, AZ
Mr. Munsinger. Mr. Chairman, I am president of Research Cor-
poration Technology, we would like to think the largest and most
successful independent technology transfer organization in the
world. We are certainly the largest in the United States, based
upon the amount of revenue we are able to distribute back to the
universities and their inventors.
We came into existence in 1987, having acquired the technology
transfer program of Research Corporation, which was formed in
1912, and was the first independent technology transfer organiza-
tion that we know of in the world.
Since the Bayh-Dole Act was passed, we have observed — and our
predecessor organization observed — tremendous growth in the
awareness on the part of university campuses regarding the impor-
tance of recognizing, identifying, examining the commercial poten-
tial of, and protecting and commercializing inventions. You have
heard from Howard and others that the growth and the number of
inventions disclosed post Bayh-Dole versus pre Bayh-Dole. You
have. heard of the growth in the number of patents issued through
universities pre Bayh-Dole and post Bayh-Dole.
Howard a moment ago pointed out the reason for the success and
why Bayh-Dole was good policy. It had the effect of fixing authority
and responsibility for technology transfer precisely at the right
place, where the research is performed and where the discoveries
You have also heard that it has increased interaction between
the universities and industry and has increased industrial support
for R&D. In 1980, industrial sources made up about 3.9 percent of
all support for academic R&D. In 1993, it had grown to 7.3 percent,
a clear indication of the increased interaction with industry in sup-
porting both basic research and applied research on university
Something about our own history to show what has happened
with technology transfer, pre and post Bayh-Dole — in 1983, our
predecessor, RC, distributed $5.8 milHon in 1993 dollars to institu-
tions and their inventors. In 1993, we distributed $35.8 million to
institutions and their inventors, a tremendous increase. In the 13-
year period, 1968 through 1980, our predecessor distributed a total
of $30.9 million in 1993 dollars back to the institutions and their
inventors on the basis of the royalties earned on their inventions.
Between 1981 and 1993, that total was $219 million.
Here you have a 13-year period pre Bayh-Dole of $31 million dis-
tributed and in 1993 — in the same dollars, 1993 dollars — we dis-
tributed almost $36 million. I think that is testimony regarding the
effectiveness of this policy, which was good policy. Any change, Mr.
Chairman, that you make in Bayh-Dole should be carefully consid-
ered so that it doesn't add complexity to the process of technology
transfer, which is a difficult one. It is difficult to cause firms to
make the large commitment of resources necessary to bring an
early stage technology through the entire developmental process
and into the public use.
Thank you very much. I would be happy to respond to any ques-
[The prepared statement of Mr. Munsinger follows:]
Prepared Statement of Gary M. Munsinger, Ph.D., on Behalf of the
Research Corporation Technologies, Inc.
Research Corporation Technologies is generally recognized as the most successful
of the companies that manage the commercialization of new technologies developed
at universities and other nonprofit research centers in the United States and Can-
Transfer of university-based inventions has experienced tremendous growth since
1980. The Bayh-Dole Act set in motion a series of events throughout the academic
research community that focused attention on the importance of identifying, protect-
ing, and commercializing discoveries growing out of research.
By placing responsibility for technology transfer in the hands of the institutions
where the research is performed and the discoveries are made, Bayh-Dole encour-
aged universities to adopt and implement policies, procedures, and practices that
have significantly enhanced the technology transfer process. Within universities
there is now greater awareness regarding the need to recognize and disclose discov-
University interactions with industry have been greatly enhanced. Industrial sup-
port of academic research grew rapidly between 1980, when it represented 3.9 per-
cent of total funding, to 1993, when it is estimated to represent 7.3 percent.
RCT's experience reflects the heightened awareness regarding the importance of
identifjring, protecting and exploiting discoveries growing out of university research
Erograms. It is recognized, however, that the development of products ana processes
ased on early-stage technologies is an expensive, high-risk undertaking. WTiile RCT
believes the U.S. will maintain its leadership position in the manufacture of tech-
nology-intensive products, any action that would weaken Bayh-Dole would discour-
age innovation and disadvantage U.S.-based enterprises in the increasingly competi-
tive global economy.
Members of the subcommittee are encouraged to consider carefully any changes
in the Bayh-Dole Act and to reject those that would further complicate or introduce
additional uncerteunty to the technology transfer process.
Mr. Chairman and members of the subcommittee, my name is Gary M. Munsinger
and I am President of Research Corporation Technologies (RCT), a technology man-
agement organization having its principal corporate office in Tucson, Arizona. RCT
is a not-for-profit, tax-paying corporation formed in 1987 to acquire and extend the
technology transfer program of Research Corporation.
Research Corporation is a foundation formed in 1912 to commercialize inventions f
made at universities and other nonprofit research laboratories and to support the
development of academic science. Research Corporation was the first organization
formed to facihtate the commercialization of inventions made at acadeniic and other
research enterprises and continued to be the predominant organization into the
1970's, when universities began to establish their own technology transfer programs
and when other independent for-profit and nonprofit organizations began to be cre-
ated. Research Corporation now maintains active programs designed to advance
academic science at colleges and universities throughout the United States.
Based on annual revenues generated by management of technologies originating
at universities, medical research organizations, and other research centers, and cer-
tainly on the basis of the amounts paid annually to these inventive sources, RCT
is generally recognized as the world's largest and most successful independent tech-
nology management company. The closest rival would be the British Technology
Group (BTG), which was an entity of the British government prior to privatization
in 1992. BTG operates mainly in the United Kingdom, but also has a presence in
I am here today in support of the Bayh-Dole Act and to explain, from the perspec-
tive of RCT, why we beheve it has met the objectives of its sponsors and supporters,
including many members of the subcommittee, and most especially the Chairman
and the ranking member.
The Bayh-Dole Act set in motion a series of events throughout the acadenuc re-
search community that focused attention on the importance of adopting and imple-
menting policies and establishing internal mechanisms designed to identify, protect,
and exploit inventions having commercial potential. Attentiveness to such endeavors
grew steadily over the last decade. This resulted, of course, from the decision to per-
mit institutions to retain title to inventions developed through government funding.
This policy had the effect of fixing authority and responsibility for the transfer of
inventions at the appropriate level— with the organizational entity where research
is actually performed and inventions are made — not just for products of government
funded research, but for all research products.
Institutional responsibihty for examining and exploiting the commercial potential
of intellectual property greatly simplified the technology transfer process by reduc-
ing uncertainty about the nature and extent of rights that commercial entities could
acquire to intellectual property produced at the institution.
Within universities themselves there is now much greater awareness among fac-
ulty and other investigators regarding the importance of recognizing and disclosing
inventions than there was in 1980. This awareness has grown steadily over the
years. While the conversionof research results into products or processes having
commercial value is not as important as traditional methods for transferring the re-
sults of research (e.g., the education of students and publication of scholarly papers),
it has gained acceptance as a legitimate and desirable activity on most campuses.
Furthermore, it has been demonstrated that programs for assessing and protecting
the commercial potential of inventions can be implemented without compromising
scientists' professional obligations to promptly share the results of their research
with peers. c ■
There is a great deal of evidence that the focus given to technology transfer since
Bayh-Dole has increased invention awareness among investigators and that an in-
creasing number of potential inventions are being disclosed and appropriately pro-
tected For example, the number of patents granted to academic institutions has ex-
perienced steady growth since 1980. A total of 1,324 patents were awarded in 1991,
representing an increase of more than 200 percent over the 437 granted in 1980
(Science & Engineering Indicators — 1993).
Bayh-Dole and other initiatives during the 1980's also substantially increased um-
versity interactions with industry. While funding from all major sectors for aca-
demic research and development increased in real terms, funding from industrial
sources more than doubled in real terms. In 1980, industrial sources provided ap-
proximately 3.9 percent of the funds applied in the performance of academic re-
search and development. By 1993, however, industrial sources represented 7.3 per-
cent. During the same period the share funded by the federal government fell from
67.5 percent to 55.5 percent (Science & Engineering Indicators— 1993).
RCT's experience and that of its predecessor also demonstrate the growth in in-
vention awareness among academic scientists. RCT worked with 80 percent more
invention disclosures in 1993 than RC had the opportunity to assess in 1980. The
period has also seen a marked increase in revenue generated from academic inven-
tions and shared with institutions and their inventors. During 1980, Research Cor-
poration's distributions to inventive sources equaled approximately $5.8 million in
1993 dollars. RCT's 1993 distributions equaled $35.8 miUion, an increase of more
than 500 percent in real terms. During the thirteen year period 1968 to 1980, RC's
distributions to inventive sources totaled only $30.9 million (in 1993 dollars). RC
and RCT distributed more than $219 million from 1981 to 1993.
We at RCT beheve, however, that many potentially valuable inventions are lost
because they are unrecognized and never disclosed. In an attempt to address this
problem, we offer a program of financial incentives to encourage investigators to dis-
close their discoveries so that the commercial potential can be assessed profes-
sionally. This program has been well received, but we continue to explore other ini-
tiatives that will encourage investigators to recognize and disclose their inventions.
Financi^ incentives motivate academic scientists, but prospects of financial reward
from royalties on the sale of products are often too remote to be effective in motivat-
ing investigators to make the effort required for their participation in the technology
transfer process. Early financial incentives to disclose, a significant share of future
royalty revenues, and other initiatives will be required to achieve the desired level
of invention awareness.
We believe that any action undertaken to modify Bayh-Dole that would have the
effect of compUcating the technology transfer process, either by imposing additional
requirements for federal review of licensing or other a^eements or otherwise reduc-
ing the degrees of freedom currently enjoyed by universities or their technology
management organizations, would work against efforts to capture a larger number
of important inventions. The Bayh-Dole Act removed barriers to effective transfer
of university-based inventions. It would be a great mistake to erect new barriers
that would reverse or stall the progress that is being made in identifying and pro-
tecting inventions that can produce important new products and processes.
Technology transfer, particularly the transfer of the early-stage inventions typical
of those resulting from university research, is a very difficult business. Although
many important discoveries are made each year, few produce "core" technologies
that become central to new competitive positions in substantial markets. A larger,
though still relatively small, number of discoveries produce incremental improve-
ments sufficient to justify costs of developing and introducing products. Most inven-
tions disclosed have limited value which is insufficient to justify the investment re-
quired to obtain intellectual property rights and ultimately to bring a product or
process into commercial use.
Corporate America is frequently faulted, often by its own representatives, for a
lack of patience and for focusing too narrowly on next quarter's earnings rather
than potential returns from long-term investments in developing new products. The
development of new products or processes requires a significant commitment of cor-
porate resources. It is a high-risk undertaking. Our job as an organization that Unks
those who invent and those who bring products and processes to market is to per-
form various functions designed to reduce uncertainty about the future value of
technology-intensive products or processes and thereby to encourage companies to
invest in their development. Our experience suggests that the willingness of both
American and foreign firms to take a longer view may be changing. Perhaps fueled
by increased global competition, reductions in defense expenditures, a new genera-
tion of leadership or a combination of these and other factors, we are encouraged
by the number and quality of companies pursuing product development strategies
designed to establish or strengthen their positions in new or existing markets. Any
action taken to add uncertainty to the technology transfer process, especially any
weakening of Bayh-Dole or other initiatives that removed barriers to technology
transfer during the 1980's, would clearly be counter productive.
I am sure we all agree that new technologies, capital formation, and entrepre-
neurship are the critical elements of the innovation process, and that new products
and processes are essential for real economic growth. The United States leads the
world in the performance of research and development and its universities make a
major contribution in creating the knowledge that gives birth to technologies that
provide the fuel for innovation.
The manufacture of techjiology-intensive products contributed significantly to the
growth experienced by the world's leading market economies during the past decade,
and is evidenced by its growing share of total manufacturing output
United States— 30.4 percent in 1990, up from 20 percent in 1980;
Japan— 35.1 percent in 1990, up from 20 percent in 1980; and, EC-12-20
percent in 1990, up from 15.2 percent in 1980.
The manufacture of technology-intensive products will continue to drive increases
in productivity that are necessary for ever-higher standards of living in these ad-
vanced economies. The United States retains its leadership role in the manufacture
of products that embody above average levels of R&D, but that role is being chal-
lenged. During the past decade the United States lost share in several sectors (en-
gines and turbines to the European Community and radio, television, and commu-
nication equipment plus the ofrice and computing equipment segments to Japan).
We maintained share in the manufacture and sale of industrial chemicals, drugs
and medicines, aircraft, and scientific instruments.
Our nation's research universities will continue to provide the new knowledge
that will drive growth in these and other industrial sectors. Any change in public
policy that would complicate or otherwise introduce additional uncertainty into the
technology transfer process will result in lost opportunities for innovation and real
Prospects for changes in regulations governing the transfer of potential new drug
or biopharmaceutical products based on research supported by federal funds have
recently had an adverse impact on RCT's efforts to attract corporate partners for
the development of projects in our current inventory. The possibility of a new, more
restrictive environment adds uncertainty to an extremely expensive, long-term,
high-risk process required for developing and gaining marketing approval for new
U.S. firms lead the world in the discovery and introduction of new pharmaceutical
products and have experienced success in the global marketing of those products.
Growth of the industry has been supported by national policies that encouraged and
rewarded efforts to invest in the development of new tnerapeutics and other prod-
ucts. These have included:
Government funded research;
Access to the products of university research;
Freedom in pricing; and
High standards for regulatory approval.
Absent significant change in public policy, we believe that U.S. research-based
pharmaceutical and biotechnology companies will continue to compete favorably
with firms based in Europe and Japan. We believe they will continue their tradition
of being the most technologically innovative of our nation's industries.
In conclusion, Mr. Chairman, let me say that the Bayh-Dole Act contributed sig-
nificantly to the process by which research-based products and processes are identi-
fied, protected, developed, and brought to market. Since the adoption of the Act, we
have seen a substantial increase in the number of inventions disclosed, evaluated
for their technical merit and potential economic value, and protected by patents in
the world's major markets. I encourage members of the subcommittee to consider
carefully any changes in the Act that would further complicate or introduce addi-
tional uncertainty into the technology transfer process.
Thank you for the opportunity to testify. I will be pleased to answer any questions
members of the subcommittee may have.
Senator DeConcini. Thank you.
Let me pose a couple of questions to the whole panel.
Number one, I take it that there is no question here in opposing
any government involvement that would have anything to do with
setting the market price for the fmal product, or for the license
from the university.
Do you object to a royalty for the Government to participate in
the profits of the ultimate product that is licensed through the uni-
And how would you do something to address the problem in the
Scripps infamous case where it is — right or wrong — perceived by
the public as being a rip-off and a bit difficult to explain when the
Government has made the original grant to the university?
We will begin with you. Dr. Munsinger.
Mr. Munsinger. The first question, Mr. Chairman, on the return
to the Government in the form of royalties, perhaps — you might
guess that my organization would not be in favor of that. I think
most universities would not be in favor of that.
Senator DeConcini. Why not?
Mr. Munsinger. Because the resources that you're able to ex-
tract in a license agreement in the form of royalties — the univer-
sity's share of that goes directly back into research and develop-
ment effort^. You're not going to be able to increase the royalty
from, say, 5 to 10 percent by virtue of the fact that the Government
would like to have a piece of the action. You're not going to change
the total amount of the royalty rate or the amount earned by royal-
ties. You are just going to change the way those resources are
being distributed. It will reduce, somewhat, the incentive for uni-
versities and their inventors to recognize and exploit inventions be-
cause they, too, see the payoff potentially at the end in terms of
Senator DeConcini. So it wouldn't make any difference to the in-
ventors, would it? It would only make a difference to a licensee who
would have 1 percent taken out of their profits that would go to
the Government in addition to the amount of the royalty they are
paying the university. It really wouldn't make any difference to the
inventor, would it?
Mr. MUNSINGER. Mr. Chairman, I think it would. I don't believe
you would be able to get 6 percent rather than 5 percent as a roy-
alty just because 1 percentage point would be going to the Govern-
Senator DeConcini. Do you think 1 percentage point would be
an obstruction to the process?
Mr. MUNSINGER. I am saying that an additional percentage point
would be an obstruction. And that is our business every day.
Senator DeConcini. I am asking you because I don't know. I just
fmd it hard to believe that for a company that is making millions
of dollars, a 1 percent additional royalty would be a disincentive —
but I take your word for it. I have nothing to refute that.
Give me an answer to my second question.
Mr. MUNSINGER. I don't think there is anything wrong with a sit-
uation such that an industrial organization supporting research at
a university has the first right to any technology coming out of that
research. I think it is a mistake to give that industrial organization
a first right to all technology coming out of all research at that in-
Senator DeConcini. Put that in la3rman's terms, Dr. Munsinger.
Are you saying that the Scripps case was OK, except that they
should not have had an exclusive license for it, but that they
should be able to sell it for whatever they can, to whomever they
want to, but not exclusively? Is that what you're saying?
Mr. MUNSINGER. I believe that Sandoz should have the first right
to the product of research growing out of their support, not nec-
essarily the first right to the product of research growing out of
Federal Government support.
Senator DeConcini. But in that case, they got both.
Mr. Munsinger. I think that is wrong.
Senator DeConcini. So how would you correct the second part of
that? Do you have any suggestions? Or maybe you would like to
offer them later. I am just looking at whether or not we should
delve into this legislatively or we shouldn't. If we do, how do we
Mr. Munsinger. I would have to give that more thought, Mr.
Senator DeConcini. Would you, please?
Mr. Munsinger. Certainly.
Senator DeConcini. Dr. Vest, could you answer those two ques-
tions for me?
Mr. Vest. Sure.
With regard to the first question, I cannot state empirically what
industry would view as the influence of 1 or 2 percent tax on prof-
its, but it seems to me that our relative roles are the following.
The Federal Government, in my view, should be supporting fun-
damental research; should be setting through policy some broad
goals and avenues of strategic interest to the country; and provid-
ing incentives. The university's role should be to conduct research,
particularly that of a relatively forward-looking and long-range na-
ture; to work very aggressively in partnership with private indus-
try to see it commercialized. I think that anything that detracts
from the incentive role and begins to produce disincentives, which
perhaps small in the first instance over time may grow, and also
perhaps increased regulation is probably to be avoided.
With regard to the second question, I can speak only on behalf
of my own institution, but I can assure you that the thought has
never crossed our mind of entering into an agreement with a pri-
vate company in which we would propose that the rights to all re-
search, regardless of who sponsored it, would automatically accrue
to one of our sponsors. Indeed, as we have entered into recent
agreements with biotechnology companies, we have been very care-
ful to write those agreements in such a way that they do have first
right to license things that they have directly paid for, but nothing
beyond that. We have put good policies and procedures in place to
assure that that will be the case.
Senator DeConcini. Thank you.
Ms. Conta. With respect to your question about royalties, we ex-
pect to pay up-front licensing fees and royalties to anyone who pro-
vides an early stage technology to us. For us, the question is not
whether the royalty is going to the Government or the university,
the question is how much the royalty will be. We would work out
an arrangement for reasonable royalty rates that were competitive
and comparable in the area. We would expect that it is between the
university and the Government to decide whether there is a further
payback to the Government based on Federal funding. We don't
feel that that is in our domain to include in a license agreement.
Senator DeConcini. What if there was a legislated mandate of
1 percent royalty to the Federal Government based on the profits?
Would that be a disincentive for you to enter into a license agree-
ment with MIT?
Ms. Conta. I think I would echo what Dr. Munsinger said. It is
the overall royalty rate that is our concern. If the overall royalty
rate seems fair to us and commensurate with what we think we
Senator DeConcini. So whether 1 percent was fair as to the li-
Ms. Conta. Yes. If we are going to pay a 3 percent royalty to a
university, and that is a fair royalty, it is irrelevant to us if the
university keeps 2 percent and transfers 1 percent back to the Gov-
Senator DeConcini. But of course you are in business and you
want to rhake as much money as you can. If you are dealing with
a private inventor who may not have the same theory or philoso-
phy that a university does — they want to get their product out
there because they can get more money back into research and
they want to promote their university, or what have you — where an
individual comes up with an invention, they want the biggest share
they can get. They may be harder to negotiate with. Is that fair?
You have to make a business judgment as to whether or not you
can make some money at the end, right?
Ms. CONTA. Right, and our business judgment is predicated more
by the millions of dollars that we have to add to the early stage
invention than it is by what we pay for it to begin with. I can't em-
phasize enough that our investment into these early stages far ex-
ceed any funding that went into the original
Senator DeConcini. I am well aware of what the pharma-
ceuticals put into these investments. I am well aware of the hear-
ings we have had. I am just trying to find out for public policy.
Quite frankly, from a legislator's point of view, as you see dwin-
dling Federal funds — and that certainly means research funds as
well — how do you try to maintain funding? Particularly, in a time
that I think we ought to be expanding research funds, how do we
get more money to create the benefits that this has? That is why
the question comes up about a royalty based on profits.
What about the second question?
Ms. CONTA. I think the NIH has approached this, from our point
of view, precisely in the right way. I served on the panel that Dr.
Chamblee spoke about. I think that the panel did an exhaustive
study of this issue and the guidelines that she mentioned were well
thought out. If they are implemented by the grantee institutions,
I really think that will take care of most of the problem.
Only one aberration was discovered in all the hundreds of agree-
ments the NIH examined. We feel that the views of small business
were very well represented by the guidelines that the NIH would
come out with. I would defer to the NIH there.
Senator DeConcini. Mr. Bremer?
Mr. Bremer. At the outset, when you are negotiating royalties,
the licensor feels that there should be no limit on royalties. The li-
censee feels that any royalty is too much. Those are the extremes
to begin with.
I think taking 1 percent out — the question that would come to
my mind is. What is going to happen to the money? If it goes into
the bureaucratic agency, it will be much less effective than if it is
retained by the university and put back into education and into the
research program which Bayh-Dole requires.
Senator DeConcini. What if it went back to the NIH for grants?
Mr. Bremer. There again, I look on that as a bureaucratic orga-
nization. Let me give you an example.
The Wisconsin Alumni Research Foundation — for which organi-
zation I was patent- counsel for 28 years — gives on the average
today about $16 million to the University of Wisconsin. That is un-
restricted funding, which is the most important kind of funding any
university can obtain because they can utilize it at their discretion.
Most of the other funding comes in where it is quite directed. A
survey that was done by a former president of the university came
to the conclusion that for every dollar that the university got from
WARF they were able to leverage another $3. So the multiplier is
much greater than if it was plowed back into any governmental ap-
proach through an agency aspect.
Another point is that when you're negotiating royalties, 1 percent
can make a tremendous difference. Effectively, you would be taking
the 1 percent from the institution and not the company because the
outcome would be that the 1 percent would go and the institution's
share would decrease by 1 percent.
Senator DeConcini. Wouldn't that depend on the negotiating
ability of the university? If there was a mandated 1 percent, hypo-
thetically, to the granting agency, then you would have to deal with
the university — the university would know you already have to give
the government 1 percent. Wouldn't it depend on how tough a ne-
gotiator they are and how much the company wants it?
Mr. Bremer. That is the key. How much does the company want
it? Every one of these inventions has to be sold. Remember that
most of the inventions that come out of university technology are
embryonic in nature. They require a great deal of development. As
a consequence, we are negotiating at a very early stage.
Also, industry standards do come into the picture — unless there
is something that a company absolutely needs — and in those cases,
you look for a company that wants an entry into the market that
is otherwise closed to them — then you can negotiate a higher roy-
alty. If it is a me-too approach, it doesn't work that well at all.
Senator DeConcini. What about the second question?
Mr. Bremer. I think there are other examples. I think Scripps
was an aberration, but we have previous examples in the Mass.
General/Higgs thing where the activities were separated out as to
the work that was carried out with the Higgs money and the work
that was carried out with the Federal funds at the Mass General
Another good examples is the MonsantoAVashington University
of Saint Louis relationship, which was published so that everybody
had an opportunity to look at that type of arrangement.
I agree with Gary Munsinger that certainly there is no reason
you can't promise a company the first option to a license, and per-
haps an exclusive license, but it should be project-oriented. Gen-
erally, it is project-oriented because it is specific research they are
supporting, generally for a specific project or a specific product.
Under those circumstances, I see nothing wrong with it. But to give
a single company the right to everything that comes through I
think is a mistake.
Senator DeConcini. Dr. Munsinger, in your opinion, is there any
reason drugs should be treated any differently than any other prod-
ucts under the Bayh-Dole and other technology transfer programs?
Mr. Munsinger. No.
Senator DeConcini. Thank you.
Does anybody else have any feeling about that? Does anybody on
the panel disagree?
Ms. Conta. I would like to distinguish biotechnology products
Senator DeConcini. Do you think they should be — obviously they
are distinguished, but should they be treated in a different manner
under the Bayh-Dole legislation?
Ms. CONTA. No.
Senator DeConcini. I understand what you are saying. Obvi-
ously there is a difference, but not under the legislation.
Ms. CONTA. No.
Mr. Vest. Mr. Chairman, if I could comment on that, I certainly
do not believe that biotechnology and pharmaceutical products
should be in any way treated separately under this act, but it is
a prime example of why we in fact need the flexibility on the uni-
versity end to think about what is in the public interest and what
is the best way to handle this patent so that if we are dealing with
a biotechnology product that has these enormous risks and long de-
velopment times, we are most likely to go with an exclusive license,
whereas in some other areas — often in the field of software, for ex-
ample — we make a decision that this belongs in the public domain.
I think the law should allow the broadest possible flexibility to
make those judgments locally, case by case.
Senator DeConcini. In your testimony. Dr. Vest, you state that
one of the benefits that the Bayh-Dole Act has had for universities
is modest royalty income. You also state that over the past 5 years
net royalty income has averaged less than 0.5 percent of your total
budget at MIT.
Are research universities receiving enough royalty income under
license agreements, in your opinion, through the Bayh-Dole legisla-
Mr. Vest. I believe the answer to that is yes. Of course, my pro-
vost who has to deal with the budget year after year might vigor-
ously disagree. But quite seriously, we realize on the order of $5
million to $7 million per year to the institute from patent royalties.
As I stated, that is particularly attractive money to us because it
is totally flexible and we plow it back into the educational and
scholarship and research activities.
But we do not believe that maximizing our potential royalty in-
come is the main goal of our technology licensing office. It is to see
that technology gets transferred out into the private sector.
Senator DeConcini. I think it is important to point out that you
are a nonprofit organization. Your salary and that of all your em-
ployees and the benefits are not based on how much you bring in.
Mr. Vest. That is correct, in the narrow sense of the word. Al-
though we are private institution and ultimately depend upon what
we receive from tuition, grants, gifts, and so forth.
Senator DeConcini. Why don't you try to get more income from
Mr. Vest. We do believe that in the long run the thing that is
most important is a strong relationship with private industry. We
think that in the past some technology licensing offices or patent
offices in universities have missed the forest for the trees of^ nego-
tiating to maximize on a case-by- case basis the potential royalty
income downstream where they should be looking at the broad pic-
ture and maximizing the number of companies they interact with.
The fact of the matter remains that there are at most a handful
of patents in the country that have really brought massive amounts
BOSTON PUBLIC LIBRARY
ii'* 3 9999 05982 972 9
of money into universities. Everybody dreams that that might be
the case, but I think you are better off keeping a broad portfoUo,
making case-by-case decisions of what is best in the public interest,
but retaining enough financial incentive to continue to have some
attraction to the faculty.
Senator DeConcini. Ms. Conta, you were on the NIH panel?
Ms. Conta. That's correct.
Senator DeConcini. And you reviewed the Scripps case in that
panel and found that it was just a single incident and not very
common? Is that fair?
Ms. Conta. That would be fair. Our concern with agreements
like that is that we are not in a position to go in to a university
and make them an offer for a large-scale technology transfer. We
focus very specifically on inventions that are of interest to us and
that we know we can commercialize. These large-scale agreements
often include inventions which get transferred to that optionee and
never developed. They are then not accessible to us as a small com-
pany and we might choose to develop them.
Senator DeConcini. Which is a disadvantage to the smaller com-
Ms. Conta. So our point of view is that we would prefer to have
the decisions made on options relatively quickly by the large com-
panies. If they don't intend to commercialize it, then turn it back
to the university so that it is available and accessible to small com-
panies like mine to develop.
Senator DeConcini. And you make a very good point there. Is
there a legislative way to fix that, to prevent that from happening?
Ms. Conta. I would propose that there shouldn't be a legislative
way to fix it. We find that the universities are — once they under-
stand the process and are adept at finding licensees, they are very
competent at this process. We would be better off not interfering
with them in telling them how to do it. They have trouble enough
finding a Ucensee as it is. There aren't that many around, and they
have lots of inventions.
I think it is best to leave it in their hands.
Senator DeConcini. Mr. Bremer, the bill introduced in the
House relating to this would amend the Bayh-Dole Act to require
a research entity to conduct competitive bidding in selecting com-
panies to market their products.
What is your response to that?
Mr. Bremer. I think that is a forlorn hope at best.
Senator DeConcini. There would be no competitive bidding?
Mr. Bremer. There is no competitive bidding.
Number one, you are lucky to find a licensee. In finding the li-
censee, one has to go out. We have made net income on 1 of every
41 invention disclosures in the history of the foundation. That
holds true today as well as in its early years.
So it is a numbers game at best. Your chances of finding a single
licensee do involve a lot of serendipity also.
We look toward a partnership with the industrial partner. It is
a shared risk situation. The university, because it is embryonic
technology, is taking the chance that its patent life will run before
a product reaches the market, whereas the industry partner is put-
ting in the money for development for the marketplace. That is the
Senator DeConcini. So if you advertise for competitive bidding,
you probably wouldn't get any takers?
Mr. Bremer. No. NASA tried to do that. They listed and adver-
tised all the technology they had available and it was an absolute
Senator DeConcini. Do you mean that there were no takers at
Mr. Bremer. That's correct, no takers.
Senator DeConcini. So it might even discourage somebody if
they thought they were bidding against somebody.
Mr. Bremer. That's right.
And practically, one has to realize that usually what gets pub-
lished in databases are things that you are not actively working on.
So if you want to use the vernacular, call them the dogs that you
can't fmd a place for. The good ones, where you do have activity,
are the ones that you very actively work on and continue to work
Senator DeConcini. Thank you very much. The testimony you
have given is very, very helpful to this committee, I can assure you.
I thank the panel.
The subcommittee will stand in recess subject to the call of the
[Whereupon, at 11:50 a.m., the subcommittee was adjourned, to
reconvene at the call of the Chairman.]